Off topic-about MSFT and not Intel.
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11:06 AM
Microsoft Slips: Morgan Stanley Cuts to Hold on Handset Integration Risk
By Tiernan Ray
Shares of Microsoft (MSFT) continue to trend down today following yesterday’s announcement the company will buy out the handset operations of its smartphone partner, Nokia (NOK), for $7.2 billion, as Morgan Stanley‘s Keith Weiss cut the stock to Equal Weight from Overweight, arguing the deal is good strategically, but worries about execution may hinder share performance.
Microsoft shares are down 66 cents, or 2%, at $31.22. Shares of Nokia continue to rise, up 12 cents, or 2.3%, at $5.24.
Writes Weiss, taking on the hardware business “likely represents the best strategy for long-term success” for Microsoft, but “investors may not give much credit to Microsoft’s near-term ability to well execute this strategy” given the risks:
By merging Win Phone with its largest OEM partner, Microsoft aims to move its share from less than 5% of smartphones to 15% by FY18, through better marketing and faster innovation. However, a vertically integrated strategy holds risk that few tech cos. have overcome while the 32K NOK employees (18K in mfg), is a sizable addition of sticky costs. Microsoft expects the deal to be $0.08 dilutive to non-GAAP EPS ($0.12 GAAP) in FY14, accretive by FY15, with an est. greater than 50M Win Phones sold (less than 5% of the mkt). We will update our model post the close of the deal, expected in 1H CY14, following approval.
Weiss notes investors want CEO Steve Ballmer‘s planned departure to produce greater return of cash:
With Ballmer retiring and activists in the shareholder base, Microsoft still holds the ability to implement more shareholder friendly changes under the fresh perspective of a new CEO. Stephen Elop will become head of MSFT’s Devices and Services group post close — and seems to be a front runner for CEO. However, with the added complexity of the NOK acq, we see less room for the new CEO to enact major strategic changes, which may limit further sentiment improvement.
