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Microsoft shares are down about 2% this morning, after sliding 6% yesterday on news that the software giant will buy Nokia’s mobile phone business. CEO Steven Ballmer said yesterday that
after discussing alternatives for their partnership, Microsoft and Nokia decided that Microsoft’s purchase of Nokia’s device business was in the best interest of both companies’
shareholders. But Microsoft shareholders clearly disagreed. The $7.2 billion that Microsoft is paying Nokia is almost certainly not worrying Wall Street, as the company has more than
ten-times that amount in cash, cash equivalents and short-term investments on its balance sheet. Investors are more likely worried about the what the return of Stephen Elop could mean for
the company. During his three years as CEO of Nokia, Elop arguably did a good job serving the interests of his former employer, Microsoft, but it’s hard to argue that he did a good job
running Nokia. Under his leadership, Nokia gave up its position as the world’s top mobile phone maker, saw its debt rating fall to junk bond status and laid off up to 20,000 people. Now Elop
is returning to Microsoft as CEO Steven Ballmer prepares to retire, leaving an opening at the top that he may try to fill. However, when Ballmer was asked yesterday if the Nokia buy was
about getting Elop into the CEO role at Microsoft, he told reporters not to “read anything into it.” One thing is clear: Elop is coming to Microsoft as head of devices and studios, a role
held now by Julie Larson-Green. Larson-Green has been viewed as one of the promising candidates who might replace Ballmer and accelerate Microsoft’s move into mobile. Now she will be
reporting to Elop, and the possibility of her ascension to the CEO role seems less likely. CLOSING A WINDOW? Investors may also be worried about how the Nokia deal will impact the future of
the Windows operating system. Although Nokia has been the Windows champion among device makers, Android phone makers have also brought some Windows devices to market. None of these have been
particularly notable so far, but now there is even less chance that Samsung or any other manufacturer will devote significant resources to developing Windows devices. Google’s purchase of
Motorola Mobility did not stop other manufacturers from making Android devices, but Android is a more open operating system with more than 400,000 apps available for download. Windows offers
fewer than half that many apps, and has less than 10% of the U.S. smartphone market. Five years ago Microsoft had more than 90% of the market for personal computer operating systems. It
still dominates that market, but as PC sales slide analysts are starting to look at the market for operating systems on all connected devices: PCs, tablets and smartphones. When tablets are
lumped in with PCs, Microsoft’s market share falls to 60%. When smartphones are included as well, Redmond’s share falls to 30%. This is why Microsoft needs businesses and consumers to buy
Windows-based mobile devices. So far, the company has not convinced investors that its deal with Nokia will accomplish this.