Microsoft Corporation (NASDAQ:MSFT)
has exhibited great volatility in its share price recently, defying what most investors normally expect from a megacap, blue-chip stock. Things got even wilder when the software juggernaut announced it would purchase Nokia Corporation (ADR) (NYSE:NOK)'s
smartphone business as well as a portfolio of services and patents for a tidy $7.2 billion.
Microsoft Corporation (NASDAQ:MSFT) is no stranger to headline-making deals, having spent billions over the past few years trying to expand its presence in mobile devices and social media.
With so much cash on the books, Microsoft Corporation (NASDAQ:MSFT) can easily afford the billions it's been spending. But at the same time, the company has a duty to its shareholders to allocate its capital in the best way possible. Has the company succeeded on that front? Or, on the other hand, is Microsoft Corporation (NASDAQ:MSFT)'s spending spree simply a waste of shareholder money?
Ringing the registers, yet again
Upon announcing the deal, Microsoft Chief Executive Officer Steve Ballmer told reporters the deal represented a “signature event.” It's not entirely difficult to see why Microsoft Corporation (NASDAQ:MSFT) and Nokia Corporation (ADR) (NYSE:NOK) are so close to one another, since their partnership first began in 2011.
Since then, Nokia Corporation (ADR) (NYSE:NOK)'s Lumia devices have run on Microsoft's Windows software. However, Microsoft Corporation (NASDAQ:MSFT)'s flagship products, its Windows operating system and Office products, are still mostly run on personal computers, for better or worse.
Meanwhile, Nokia's stock surged as much as 40% intra-day after the announcement. Shares of Nokia reached their highest level in over a year, and it's easy to understand the optimism from Nokia's point of view.
The company, which was once a global leader in cell phones, has seen its business deteriorate in recent years. Nokia's devices have not kept up with the soaring popularity of the iPhone, Android, and other competing products.
Nokia was a $40 stock in late 2007, and booked 51 billion euros in sales and 8 billion in operating profit that year. As competition heated up and stole market share away from Nokia, its business collapsed, and its stock price followed suit. Today, Nokia trades for $5 per share and reported an operating loss of more than 2.3 billion euros on just 30 billion euros in sales in its last fiscal year.
Clearly, Nokia is in a dire situation, and needs something to breathe life back into it. Fortunately for Nokia, Microsoft was there to offer a helping hand.