The Disconnect Between Microsoft and Nokia

NEW YORK (TheStreet) -- If you were holding shares of Nokia (NOK) on Thursday you probably still have that queasy feeling in your stomach after the shares plunged almost 10% at one point. The stocks closed at $7.03, down nearly 9%, and are off over 13% for the year to date.

Microsoft's (MSFT) plan to purchase Nokia's floundering handset division for around 5.4 billion euro ($7.2 billion) apparently did not help things when it came to Nokia's fourth-quarter earnings.

NOK shareholders overwhelmingly approved the deal in November 2013 and the transaction is expected to close sometime during the first quarter of this year, subject to regulatory approval.

After NOK announced it experienced a net loss of 25 million euros ($34 million) in the final quarter of 2013 and that smartphone sales fell 29%, the Helsinki stock market dumped Nokia shares. Yes, it was hellish in Helsinki and NOK stock closed down 10% over there.

Here in the U.S. NOK opened Thursday at $7.24, down almost 6% from the previous day's closing price. Shares hit a nadir of $6.88 before closing at $7.03. The three-month average daily volume of around 24 million shares was greatly exceeded on Thursday, with almost 85 million shares trading hands.

The division of Nokia that will be purchased soon by MSFT saw an ugly downturn. Sales nosedived to 2.6 billion euros from 3.7 billion euros in the year-ago period. This segment recorded an operating loss of 198 million euros compared with a profit of 97 million a year earlier. It's a wonder shares of NOK didn't close even lower.

Let's look at Nokia's one-year price chart. It doesn't show the results from the latest quarter -- but if not for the fact that Microsoft was buying its devices and services unit, NOK's stock price would be down in the direction of its diluted quarterly earnings per share and free-falling cash from operations.

NOK Chart
data by YCharts

You can read all the gory details of the fourth-quarter financial results at the company's Web site. As the Associated Press reported, the results didn't mean that Nokia didn't sell a lot of cell phones in the final quarter of last year. NOK sold 30 million Lumia handsets in the full-year 2013, about twice as many as in 2012. It also launched several new Lumia models, including its first large screen smartphones and its first tablet, the Lumia 2520.

Still, its products are not challenging the leaders in the smartphone sector, Apple (AAPL) and Samsung Electronics.

Nokia Chairman and acting CEO Risto Siilasmaa should have described the fourth quarter as a swan song instead of a watershed for the company, which is now composed of the smaller divisions or, as I call it, "the leftovers" after the Microsoft deal closes. He said the company continues to expect the Microsoft deal to "significantly improve Nokia's earnings profile."

Good news for Nokia's shareholders. But how about Microsoft shares?

MSFT actually closed up a little on Thursday to $36.06, but -- and this is a big "but" -- the stock popped by 3% in after-hours trading following the news it reported a fiscal second-quarter profit of $6.56 billion, or 78 cents a share, compared with a profit of $6.38 billion, or 76 cents a share, for the year-earlier period.

Revenue rose to $24.52 billion from $21.46 billion. Analysts polled by FactSet on average were expecting the company to report a profit of 68 cents a share on revenue of $23.67 billion, so this was an unexpectedly pleasant upside surprise in both these financial categories. Thirty minutes after the closing bell, MSFT shares were trading around $37.24, up $1.18 from the day's closing price.

The one-year chart for MSFT is looking pretty good already. When all the facts about the fourth quarter 2013 financial results are factored in this chart will look even better.

MSFT Chart
data by YCharts

The company's 14% sales growth and other positive announcements should help secure its sustainable 3%-plus dividend and the upside prospects for MSFT's share price.

This is especially good news in the light of Nokia's dismal fourth-quarter results. Nothing like a good contradiction between the acquired and the acquirer.

At the time of publication the author had positions in AAPL and MSFT but had no positions in the other companies mentioned in this article.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.


Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial writer and editor, he specializes in unique investment strategies, growth with income stocks, overlooked investment themes, tax-advantaged themes, risk management, technologies to capture gains and reduce losses, real estate related opportunities,effective wealth preservation techniques, and the use of ETFs for diversification and asset allocation. He also follows and frequently writes about technology, health sciences, energy and resource companies. Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.

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