Microsoft shares took a hit Tuesday on news of the company's planned $7.1 billion acquisition of Nokia's mobile business, as industry analysts and investors worry about Microsoft's ability to establish itself as a mobile market leader.
Investors were not immediately on board with the planned big-bucks purchase, and Microsoft shares fell more than $2 (more than 6 percent) and continued to drop Tuesday, the morning after the deal was announced. In comparison, Nokia's shares flew up more than 40 percent on the news.
Analysts contacted by CRN said they were wary about what the move will mean for investors as Microsoft works to gain share in the mobile marketplace.
"From an investor perspective, I'm not convinced that this is going to give Microsoft the kick they need in mobile," said Jack Gold, a technology analyst from J. Gold Associates.
Anil Doradla, an analyst with William Blair & Co., said that technology and industry uncertainties surrounding the deal left a lot of doubt around the software company's switch to hardware.
"There's going to be more bears than bulls on this acquisition for sure," Doradla said.
Eric Martinuzzi, a senior research analyst with Lake Street Capital Markets, said the deal reminded him of Hewlett-Packard's $1.2 billion acquisition of Palm in 2010, which was largely declared a disaster. He blamed the drop in shares on investor concern about Microsoft's buyout of a platform that might soon prove to be out of date.
Gold worried that the Nokia buyout was another step by Microsoft to follow in Apple and Google's footsteps, which he said could not be filled when Nokia only holds about 3 percent of the mobile device market.
"They're not getting ahead; they're following. Think of why [Microsoft is] doing this -- it's not because they're so far ahead of things," Gold said. "Show me how this will ultimately make [Microsoft] the leader in mobility, given that Nokia has 3 percent of the market."
Other analysts disagreed, saying that Microsoft was making small cultural steps in the right direction, first with the announcement of Microsoft CEO Steve Ballmer's upcoming retirement and now with the Nokia deal.
"This kind of deal would not make sense yesterday. Going forward, tomorrow this might make sense," independent technology industry analyst Jeff Kagan said. "To see this kind of change is good. It's what Microsoft needs to shake itself up and come out of its cocoon. ... The question is: When are they going to catch on? ... Will it be this year? Next year? ... We don't know. But at least they're kicking and screaming in the right direction.
"The question is will this merger, this buyout accelerate growth? I can't answer that," Kagan said.
PUBLISHED SEPT. 3, 2013