Microsoft Corporation (NASDAQ:MSFT) has once again made the headlines today. The reason behind this is the recently announced purchase of Nokia Corporation (ADR) (NYSE:NOK)'s Devices & Services business -and some licenses for patents- for approximately $7.2 billion. This is certainly one big step ahead in Microsoft's transformation into a devices and services company. Also as a part of this conversion process, Steve Ballmer (Microsoft’s CEO), announced his retirement a few weeks ago. Ballmer stated that this decision stemmed on the necessity of having one CEO along the whole renovation.
Although the transformation and Ballmer’s departure seem promising to some analysts, near-term uncertainties remain, and this was certainly reflected on Microsoft’s stock price. The shares were down about 5% today, September 3rd, exposing the concerns on the investors’ side.
The acquisition will further pressure Microsoft Corporation (NASDAQ:MSFT)’s margins and strongly limit the company's free cash availability. By adding 32 thousand employees on top of Microsoft’s current 99 thousand, the firm’s cost structure will be considerably altered. The investment has also led analysts to discard the possibility of an accelerated stock repurchase plan, which many expected to be announced on September 19th.
Many shareholders are also worried by Microsoft Corporation (NASDAQ:MSFT)´s further commitment with its hardware segment, which has been pretty unsuccessful in the past. Acquiring a struggling company that sold about 25% less units in the second quarter of 2013 compared to the year-ago period, is certainly not reassuring.
Furthermore, it looks like Microsoft Corporation (NASDAQ:MSFT) is arriving, once more, late to the party. The company seems to be imitating what Apple has been doing for quite some time now: integrating the production of devices and operative systems. With a head start, Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) pose a strong competition.
Results are highly dependent on execution, but the Nokia Corporation (ADR)(NYSE:NOK) acquisition bodes well for Microsoft Corporation (NASDAQ:MSFT)’s long-term prospects, especially as Windows Phones gain market share in important geographies such as urban China and France. In a late Monday interview, Mr. Ballmer said that “because Nokia and Microsoft already work so closely together, it should be a ´smooth transition´ to integrate Nokia Corporation (ADR) (NYSE:NOK)'s mobile business into Microsoft.” Meanwhile, an attractive valuation and increasing pressures for stockholder returns could ameliorate the risk profile.