Associated Press — Nokia, based in Espoo, near the Finnish capital, and Microsoft have been trying to make inroads in the smartphone market as part of a partnership forged in 2011. Under the alliance, Nokia's Lumia smartphones have run on Microsoft's Windows software, but those devices haven't managed to compete with iPhone or an array of Android-powered devices spearheaded by Samsung Electronics' smartphones and tablets
Microsoft is betting it will have a better chance of narrowing the gap if it seizes complete control over how the mobile devices work with its Windows software.
Despite the dismal performance of Windows phones — 7.4 million units in the second quarter compared to Apple's 31 million and 187 million Android phones, according to research company IDC — Microsoft CEO Steven Ballmer was upbeat about the partnership with Nokia, saying he was encouraged by a growth of 78 percent in Lumia phone sales in a year.
"Now is the time to build on this momentum and accelerate it further," Ballmer said Tuesday. "Finland will become the hub and center for our phone R&D and we are counting very much on the incredible talent of Nokia employees to be a key part of driving and propelling Microsoft forward."
Ballmer said that Microsoft will invest more than $250 million in a new data center to serve European consumers.
Neil Mawston from Strategy Analytics said the move was good for Nokia's shareholders but did not change much for the ailing Finnish firm which has lost significant market share.
"Nokia is still heavily dependent on Microsoft's software capabilities and Microsoft continues to lag the market like it has done in the last few years," Mawston said. "Not much will change whether Nokia is inside or outside the Microsoft portfolio."
The acquisition is being made at the same time that Microsoft is looking for a new leader. Just 10 days ago, Ballmer, 57, announced he will relinquish the CEO reins within the next year in a move that many analysts regarded as Microsoft's tacit admission that the company needed an infusion of fresh blood to revitalize itself.