Microsoft Corporation (MSFT), Nokia Corporation (ADR) (NOK): Who Wins?

Microsoft Corporation (NASDAQ:MSFT) finally pulled the trigger on a deal that’s been long in the making. The software giant will acquire the mobile division of Finnish mobile-phone maker Nokia Corporation (ADR) (NYSE:NOK) in a $7.2 billion blockbuster deal, set to close in early 2014 if all goes as planned.

Nokia Corporation (ADR) (NYSE:NOK) is an obvious winner here. Its share price jumped as much as 48% overnight before settling down to a still-enormous 30% afternoon gain. Nokia hasn’t traded at these prices since early 2012, and the stock is still down 80% over the last five years. The company never found a way to protect its formerly dominant mobile market share in this new smartphone era, and this exit strategy is about the best the Finns could hope for.

Image source: Microsoft and Nokia, plus five minutes of GIMP editing.

The purchase is not so obviously good for Microsoft Corporation (NASDAQ:MSFT), though. The Redmond’s shares plunged 6% on the news, with the first two hours of post-holiday market action doubling Microsoft’s daily average trading volume. The price drop removed 15 points from the Dow Jones Industrial Average , and Microsoft is easily the weakest Dow performer on this dullTuesday.

The Nokia Corporation (ADR) (NYSE:NOK) deal adds a serious hardware division to Microsoft Corporation (NASDAQ:MSFT), in line with outgoing CEO Steve Ballmer’s vision of a “devices and services” model. The new Microsoft is starting to look a lot like the old Apple, where a single company provides the entire stack of hardware and software to build high-end smartphones.

This has worked fantastically well for Apple, which has become one of the world’s largest businesses by important metrics like market cap, profit, and cash flows. But will it work similar wonders for Redmond? Aside from the Xbox gaming console, Microsoft Corporation (NASDAQ:MSFT) is not known for its hardware prowess. Failures like the Zune music player, the Surface tablet, and the Kin handset don’t bode well for Microsoft-branded Nokia Corporation (ADR) (NYSE:NOK) products.

Then again, Nokia Corporation (ADR) (NYSE:NOK) comes with some 30,000 experienced engineers, designers, and support staff. That talent, plus Microsoft Corporation (NASDAQ:MSFT)’s financial and marketing heft, might add up to something good. But investors seem skeptical today.

But this megadeal also shines a whole new light on the mobile market at large. Investors seem to be confused about the long-term implications, judging by the price swings Microsoft’s offer unleashed.

Alcatel Lucent SA (ADR) (NYSE:ALU) has soared more than 12%. The Nokia that remains outside Microsoft’s umbrella will refocus on mapping services, intellectual property dealings…and networking infrastructure. Alcatel would make sense as a buyout target for the newly cash-rich Nokia. Then again, putting these two turnaround efforts together would complicate both of them and probably achieve neither. So that’s a long shot at best.