Is Elop being groomed to take over top job at Microsoft?
Microsoft's $7.2 billion deal to buy Nokia's mobile phone business may be as much about hardware as it is about one man—Stephen Elop—and whether he's being groomed to take over the top job at the Redmond, Wash.-based software giant being vacated by the retiring Steve Ballmer.
The acquisition will be a homecoming for Elop, who'll be stepping down as Nokia CEO and coming back to lead Microsoft's devices group, where he once headed the business division—including the rainmaking Office suite—before he left three years ago to run Nokia. The devices division includes Windows Phone, Xbox, and the Surface tablets.
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Ballmer was cagey in an interview with CNBC on Tuesday about Elop as a top contender for his job, but showered the executive with praise. "We're glad to have Stephen come to Microsoft," saying Elop is the man to "make sure that the Nokia-Microsoft acquisition goes flawlessly."
In pre-market trading Tuesday, Nokia shares rose 45 percent on news of the deal, while Microsoft slipped five percent.
There are questions, however, about whether Elop would be the right choice to ultimately succeed Ballmer, primarily because Elop presided over an 80-percent drop in Nokia stock and an inability to make any meaningful dent in the smartphone device business dominated by Samsung and Apple.
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"Had [Elop] actually turned the business around, then that would be a different story," Hudson Square Research tech analyst Daniel Ernst told "Squawk Box" on CNBC. "The story that Nokia will tell you is that, year-over-year, their smartphones are up 78 percent. But that's only to just over seven million handsets."
By comparison, Samsung sold about 70 million handsets in the second quarter alone, followed by Apple's 32 million, according to information technology research and advisory firm Gartner.
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In 2011, Nokia teamed up with Microsoft and uses Microsoft Windows software to run its mobile phones. But the operating system has so far captured only a 3.7 percent share of the global market, putting it third behind Google's Android OS, which has a 79.3 percent share, and Apple's iOS which has a 13.2 percent share.
"We really kicked this journey off two and a half years ago with a partnership with Nokia to do Windows phones and that partnership has yielded some very good results," Ballmer said on "Worldwide Exchange."
The transaction is expected to close in the first quarter of 2014, subject to approval by Nokia's shareholders and regulators. Besides Elop, about 32,000 Nokia employees will be joining Microsoft.
But Nokia will be retaining 60-percent of its employees, as well as its mobile broadband technology and mapping business, of which Microsoft will become a strategic licensee of the map platform. Microsoft will separately pay Nokia for a four-year license.
"We are building a strong European technology company," Nokia interim president and CFO Timo Ihamuotila told CNBC. Nokia said the board had convened almost 50 times since the beginning of the year to discuss how to create shareholder value from the mobile unit.
"We feel that this is a good transaction for Nokia shareholders," said Ihamuotila in a "Squawk Box" interview, adding that he expects "improved earnings on the assets which will remain with Nokia."
Nokia will also retain its patent portfolio and will grant Microsoft a 10-year license to its patents at the time of the closing.
"It is a big surprise for the market to digest. About a year ago there was some serious discussion about whether Microsoft would buy Nokia's handset business and it didn't happen," Bob O'Donnell, program vice president, clients and displays at IDC in San Francisco told CNBC Asia's "Cash Flow."
"To revisit that now is a huge deal. It is good for Microsoft in the sense that they control the hardware and they control the software—it's a very Apple-like strategy," he added.
Ilka Rauvola, analyst at Danske Bank, told CNBC that Microsoft would now be better able to control its own destiny with the Windows Phone.
"My concern is what about the other guys that have been trying Windows phones? We've seen Samsung, HTC, a couple of other large players are probably not going to be quite as interested now that Microsoft owns this new business," IDC's O'Donnell said. "That's the big question mark."
Some analysts were skeptical about whether the deal would be beneficial for Microsoft.
"This is too little too late. Bringing in a struggling company like Nokia and thinking it can rejuvenate Microsoft into a mobile company—I doubt that will happen," said Trip Chowdhry, the managing director of equity research at Global Equities Research.