Microsoft shares fall on concerns about Nokia deal

The Redmond, Wash., has been racing to catch up with demand for smartphones and tablet computers. The shift to mobile computing from traditional PCs has weakened Microsoft while empowering Apple, which makes the iPhone and iPad, and Google, which gives away the world's most popular mobile operating system, Android.

Microsoft is now betting it will have a better chance of narrowing the gap with its rivals if it seizes complete control over how mobile devices work with its Windows software. It plans to pay $5 billion for the Nokia division that makes mobile phones, including its line of Lumia smartphones that run Windows Phone software. Another $2.2 billion will be paid for a 10-year license to use Nokia's patents, with the option to extend it indefinitely.

"Until there are signs that (Microsoft) can innovate and successfully execute in the post-PC era, we expect the stock to languish at current levels," said Janney analysts Yun Kim and Alice Hur. "We do not believe the planned acquisition of (Nokia's) mobile business changes (Microsoft's) strategic positioning in the smartphone market."

Buying Nokia's phone business makes it unlikely that Microsoft would separate its struggling consumer business from its successful enterprise business, said Walter Pritchard of Citi Investment Research. Some investors and analysts had speculated that Microsoft might do that, he said in a client note.

The analyst also believes the Nokia acquisition may temper the optimism that investors had about a new Microsoft CEO shaking up the company. Investors could conclude that buying the Nokia unit locks Steven Ballmer's successor into the current strategy at the business, Pritchard said. Ballmer announced less than two weeks ago that he will step down from the CEO post within the next year.

(Also see: Microsoft CEO Steve Ballmer to retire within 12 months)

Monday's announcement has fueled speculation that Nokia CEO Stephen Elop, who left Microsoft in 2010, will emerge as a top candidate to succeed Ballmer. He will rejoin Microsoft as executive vice president of Nokia devices and services once the acquisition closes.

(Also see: Saviour or slayer? Either way, Nokia's Elop a contender for Microsoft chief)

Microsoft Corp. hopes to close on the deal early next year.

A representative for Microsoft did not immediately respond to an email seeking comment.

Shares of Microsoft fell $2.02, or 6.1 percent, to $31.38 in late morning trading. Shares had gained 25 percent this year.

Nokia's U.S.-traded stock soared $1.32, or 34 percent, to $5.22. The shares hit $5.58 earlier in the session, their highest level since February 2012.

(Also see: Nokia stock surges on Microsoft takeover)