Microsoft’s new boss can hang up on Nokia. Buying the Finnish smartphone maker’s devices and services businesses was Steve Ballmer’s swan song as chief executive officer of the U.S. software giant. If Satya Nadella wants to put his stamp on the company, he could reverse course on the $7.2-billion (U.S.) deal. He’ll have to act fast, though, to pin the folly on his predecessor.
It’s rare for essentially the same board to undo a deal it just approved. The towering presence of Bill Gates is gone from the chairman’s seat, however. The experiences of John Thompson, – Mr. Gates’ replacement – at Symantec and IBM will have taught him the value of shutting or selling poorly performing operations. Activist fund ValueAct, which helped change the guard at Microsoft, also has a seat at the table.
Annual elections at Microsoft could usher in additional new directors soon. And Mr. Ballmer’s $2-billion acquisition of the Los Angeles Clippers basketball team gives him an excuse to leave the board.
As Mr. Nadella, who took over as CEO in February, surveys the realm, he’s undoubtedly asking whether Microsoft needs to be hawking phones. It’s also uncertain the market wants or needs a third mobile software competitor.
They’re big questions for Microsoft. Google’s Android and Apple’s iOS are eating into the desktop market, evidenced by steadily declining PC sales. Because customers aren’t locked into a Microsoft phone platform, businesses including Office are threatened while opportunities such as mobile advertising would be forgone.
Nokia itself is providing an answer. The unit racked up a first-quarter loss of nearly $450-million. Some $600-million in annual cost savings from the acquisition help offset some of the damage. Microsoft’s previous guidance, however, and rapidly falling prices mean Nokia probably needs to double its 3-per-cent share of the global smartphone market just to break even. Apple’s and Android’s strong customer bases are an impediment.
Closing the handset unit would save capital by stopping the losses. And Google’s $2.9-billion sale of the smaller Motorola means Microsoft might even find a buyer, albeit at a discount to its purchase price. Of course, Nokia’s rapid shrinkage means its value is diminishing by the day. It’s one more reason for Mr. Nadella to swiftly clean up Mr. Ballmer’s mess.
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