What's Wrong With Microsoft Today?

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Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Microsoft is missing out on a miniature market rally today. The software giant's shares dropped as much as 0.8% in the morning session, making Microsoft the second-worst performer on the Dow Jones Industrial Average Both the Dow and the S&P 500 index have made substantial gains today.

Why is Microsoft lagging the markets today? Nokia holds the answer to this riddle.

Source: Microsoft and Nokia, plus five minutes of editing by the author.

And a riddle it is. Nokia this morning reported third-quarter results that were a curiously mixed bag. Nokia shares have jumped almost 9% on the report, because the Finnish company sees profit margins expanding once it off-loads the handset division to Microsoft next year.

The downside, of course, is that Nokia's handset business is struggling mightily. Phone sales plunged 19% year over year, and the division reported yet another in a long series of operating losses. This is the damaged operation that Microsoft is spending $7.2 billion on, and Microsoft investors are smelling a bad deal in the making.

On the other hand, it's not like Nokia's weak handset business should come as a surprise to Microsoft shareholders today. The writing has been on the wall since 2007 or so, when the world's largest cellphone-maker started turning into an also-ran.

Nokia's bet-the-farm play on Microsoft's Windows Phone software has so far turned out to be a dud. Microsoft hopes to turn the game around by taking Nokia's smartphones in-house, but that looks like another hail Mary that is doomed to sail right out of the end zone.

Microsoft is throwing good money at bad assets, and investors just got another reminder of the Nokia deal's low value.

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The article What's Wrong With Microsoft Today? originally appeared on Fool.com.

Fool contributor Anders Bylund has no position in any stocks mentioned. Check out Anders' bio and holdings or follow him on Twitter and Google+. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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