When Microsoft and Nokia announced Monday night that the software
giant would be buying the Finnish phone company's handset business, there was
plenty of talk about win-win, improved efficiencies and shareholder value.
But come Tuesday, when the stock market opened and pundits started pontificating, it was clear from the mixed reactions that not everyone saw the $7.2 billion deal in glowing terms.
Microsoft Chief Executive Steve Ballmer, who is retiring within the next 12 months, may have disrupted the status quo in the mobile market with this blockbuster acquisition, but the challenges Microsoft and Nokia face to succeed in the business are no less daunting.
In Finland, some media reports expressed sadness over the loss of a substantial chunk of one of the nation's leading companies and once the world's dominant cellphone handset maker.
But Nokia investors reacted well to the news, sending the company's share up 31 percent to close at $5.12 Tuesday.
Not so for Microsoft's shares, which plunged 4.6 percent to close at $31.88 Tuesday.
Longtime Microsoft securities analyst Rick Sherlund of investment bank Nomura called the deal a "poke in the eye."
"Microsoft is operating under the strategy that it needs to design devices along with its software to deliver competitive products," Sherlund wrote in a note to investors. "This may be true, but so far the costs of being in the hardware business seem to be outweighing any near-term benefit, and Nokia is another step in this direction, with losses expected of about $1 billion this year."
Others saw the situation as Redmond-based Microsoft having no other choice if it wanted a toehold in the mobile market -- something that's vital if its operating systems and services are to remain relevant in the future, especially as it competes with principal consumer-market rivals Apple and Google.
Currently, Microsoft's Windows Phone operating system holds only about a 3.3 percent worldwide market share. Microsoft executives say the acquisition allows the company to move more aggressively, operate more efficiently, and market its products in a more focused way as it battles to increase its share.
"Is it the right move? I think it's the best of the bad moves available," said Michael Yoshikami, chief executive of money-management firm Destination Wealth Management.
"If Nokia were not in existence, I don't see companies like Samsung or HTC" really stepping in to fill that void for Windows Phone, Yoshikami said. "I think it's what Microsoft had to do. But it's a very, very tough road they've signed on to."
Microsoft purchased Nokia's handset business as part of a $7.2 billion deal -- $5 billion toward the purchase of Nokia's Devices and Services Business and $2.18 billion toward licensing of Nokia's patents and mapping services.
As part of the deal, expected to close in early 2014, pending regulatory approval, about 32,000 of Nokia's current 88,000 employees will become Microsoft employees. Many of those employees work in Nokia's manufacturing facilities in countries including Brazil, China, India and Mexico.
About 4,700 of the employees working in Finland in research and development, engineering, design and operations will remain there.
Analysts had mixed reactions to Microsoft taking on a significant number of
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