Microsoft Remains Mobile

 | Sep 03, 2013 | 10:18 AM EDT
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Last night's news that Microsoft (MSFT) is buying Nokia (NOK) for $7.2 billion is not a surprise. I know that everyone is enjoying dumping on Microsoft this morning and saying how this move will not make the Windows Phone more appealing, but did you really think Microsoft was going to walk away from mobile?

I'm not saying this acquisition is going to change anything. I'm just saying Microsoft's board and management were terrified that they were going to cede the mobile market to Google (GOOG) and Apple (AAPL).

If Microsoft was going to stay in the mobile game, it was inevitable that they would buy Nokia's handset business. It's a bonus that they also get Stephen Elop who seems now to be the heir apparent for Steve Ballmer to run all of Microsoft.

As I said last week, Elop was the most likely external candidate to take over running Microsoft.  Microsoft's board is under attack from an activist investor who is set to win support from a bunch of disgruntled passive investors. That's why ValueAct was able to get a board seat without a proxy fight. And that's why Ballmer is leaving before his kids go off to college.

But there were clearly more shoes to drop in Redmond. Microsoft's board members knew they had to show they were doing more in response to restless shareholders. An outside CEO would be a signal of change to the market.

But how do you appoint an outsider (who's really an insider) and had the trust of Bill Gates and the rest of the Microsoft not to mess up the strategy they've been following for years? Enter Stephen Elop.

One thing is clear: There will be no major strategic shifts under Elop. Microsoft will continue to be committed to enterprise and they will continue to be committed to mobile devices.

There still could be a spinoff of the Xbox unit and a closing down of the Online Services Division (although it seems unlikely the company will part with the Bing search engine). Those moves will likely create shareholder value, although not as much as they would if the company completely exited consumer and focused only on enterprise. But that would be too revolutionary. Microsoft's board wasn't willing to go there -- even with activist investors barking.

There's no guarantee that Microsoft will win in mobile. But Stephen Elop is the trusted executive to make Microsoft think it can.

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