So what?

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Microsoft Surprises Nobody With a Buyout That Changes Nothing

Last week, Microsoft (MSFT) surprised nobody by announcing Steve Ballmer would be stepping down as CEO after a rather lackluster 13 years at the helm of MSFT.

And in the latest predictable move from MSFT, the Seattle software giant has decided to buy the device division of Nokia (NOK) for roughly $7.2 billion after several years of synergy between the two businesses.

NOK stock popped more than 40% on the news, while Microsoft stock slid about 5% Tuesday morning.

The Microsoft buyout of NOK is predictable for a number of reasons, but mostly because Nokia was already Microsoft’s closest partner in the smartphone war. NOK and its phones provide the biggest platform by far for the Windows Phone operating system, with the Finnish telecom opting for MSFT software over the Google (GOOG) Android OS for its flagship Lumia line.

Nokia even killed its own in-house operating system, Symbian, in favor of Windows Phone.

Of course, Nokia volumes never rivaled that of the Samsung (SSNLF) Galaxy or Apple (AAPL) iPhone … but it was something. According to IDC, Android powered almost 80% of the 236.4 million smartphones shipped in Q2 — largely on Samsung Galaxy phones. iOS was running on 31.2 million iPhones in the second quarter of 2013, to top 13% market share.

And Windows Phone? Just 8.7 million units for less than 4% market share.

But hey, at least it topped a dying BlackBerry (BBRY). That counts for something, even if it simply means MSFT might be the last fish to get eaten.

So in the race to control the smartphone ecosystem and use it as a platform to market share, it’s no surprise that Microsoft had to partner up with a hardware and device company if it ever wanted to truly have a future in mobile. Google did the same thing about two years ago with a $12.5 billion buyout of Motorola to get at its hardware unit, which has finally resulted in the new Moto X smartphone that will showcase Google software on a made-to-order device instead of a third-party offering.

The influx of Nokia talent is also noteworthy, as NOK chief exec Stephen Elop is joining Microsoft as part of the megadeal; Elop is among the names being chewed over as Steve Ballmer’s successor.

So what does this mean for MSFT stock?

Not much, unfortunately. The mobile game is still capricious and MSFT remains painfully behind, especially after recent troubles with the Microsoft Surface tablet.

But hey, hope springs eternal. “Microsoft aims to accelerate the growth of its share and profit in mobile devices through faster innovation, increased synergies, and unified branding and marketing,” the companies said in a joint press statement.

Sure. Whatever.

If you’re an investor, don’t expect Microsoft to move higher anytime soon based on a Nokia buyout. There still are big problems with the existing mobile line and Surface, a big leadership vacuum remains, and ultimately any “synergies” will take time — and might be less than impressive considering that Nokia isn’t exactly the belle of the ball when it comes to hardware.

On the plus side, Microsoft certainly had the cash laying around and apparently saw fit to use it. So perhaps the most bullish takeaway for investors is that at least MSFT is looking to do something different.

Considering the past 10 years, and the fact that this buyout is only tapping about 10% of the $76.8 billion in cash and short-term investments MSFT boasted last earnings report … that’s ultimately a good thing.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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Comments
  • DA

    What the hell are you talking about?

  • dur

    you should get your ifone out of your ass… PATENTS YOU IDIOT.. PATENTS.
    it changes a lot…

  • Mikey Y

    If Microsoft surprised no one with its buyout of Nokia, why the heck did Nokia stock shoot up almost 40%? Obviously you are wrong.

  • lol

    Nokia is not the belle of the ball in terms of hardware? Can’t believe these people get paid to write

  • http://facebook.com/michael.gentry.follow MichaelGentry

    Microsoft just officially served notice to the competition what they already knew they are screwed. Congrats MSFT game, set and match :)

  • Yoda

    Wow, Jeff. You should have just started this blob of crap by stating that you are a bigot to anything not iphone.That way you wouldn’t insult readers by making us read between the lines, then we could have gone about our day and actually been productive rather than read this. You stated nothing of value except a few stats (that everyone one else that has written an article already stated) and that Surface didn’t blow the doors off the market. But you never explain your prediction that it changes nothing. This content is weak, there are better articles posted today that support this topic. Nice headline though, Jeff. Everyone loves to read some hate. Well done?

  • Martin Squorsezi

    LOL you are so clueless about this transaction that it hurts to read your drivel…it physically hurts.

  • Gar

    I was surprised, and I have owned Nokia for almost a year. I’m not a crap shoot investor either. To be honest though I figured Nokia stock would have increased more than a buck…

  • http://charlessizemore.com/ Charles Lewis Sizemore, CFA

    A couple thoughts:

    1. Windows Phone has about 10% of the market in Europe, which is nothing to sneeze at, and emerging markets are still a battle ground. Buying Nokia ensures that the MSFT platform will be a contender for the duration. They might still lose; we’ll see. But this at least makes it interesting.

    2. If Microsoft had innovative management–and who knows, they might once Ballmer is gone–they would use the Nokia purchase to leverage Skype. Skype (or something substantially similar) should have displaced the traditional phone number by now. (A phone number is the only “user ID” that is tied to a specific device, which makes it archaic. E-mail, instant messaging, Skype, etc. can all be accessed by multiple devices or shared devices.) I suspect that MSFT has been reluctant to rock the boat with the telecom firms by pushing Skype too aggressively.

    We’ll see. In the meantime, MSFT is a dividend growing machine with more cash than it knows what to do with. I’m long MSFT and likely will be for a long time.

  • giuann

    I do not own a smart phone but if I ever buy one it would be a MS.($35 old Motorola does everything I need, phone calls) I do not want learn another system. As now Windows the most used system with millions of applications. When Intel and AMD will produce Pentium like CPU usable in the low power application windows will take off.
    Also do not disregard that programs for the windows system can be made with a variety of tools and they can be a lot more efficient that the java one.
    Furthermore if they make profit on the hardware they can give the OS away.

  • Henry Hill
  • Charles

    Man, you sound like an idiot! What school system did you come out of? You know so I can make sure my kids avoid that one. Nokia dominated Windows Phone and they got Microsoft to reduce the license fee down to $10… As low as they got for Android… So they had to even it up and buying Nokia was the best way to do that. Driving mode feature in GDR3 accents that. Since Nokia was the one that came up with driving mode… So life goes on and 3rd party vendors will most likely be taking up Microsoft’s offer to dual boot Window Phone on the Android phones since otherwise Microsoft might pull the license for Android. Which puts Windows Phone over Apple easy and throws Bing a little more market share.