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.
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.
- Nick Wingfield was one of the first to report that Microsoft is buying Nokia. (NYT)
- Nokia’s last Symbian phones shipped this summer, so the smartphone OS is officially dead. (Engadget)
- Tom Taulli’s post, “Mobile: The Nail in Steve Ballmer’s Coffin.” (InvestorPlace.com)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at email@example.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.