Microsoft Corporation (NASDAQ:MSFT) is doubling down on its smart phone bet by agreeing to buy the handset division from Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V). The market is not happy with the news, and shares in Microsoft Corporation (NASDAQ:MSFT) have dropped more than 6 percent today. There are a lot of reasons investors are skeptical about the deals benefits at Microsoft.


John DiFucci, an analyst at JPMorgan Chase & Co (NYSE:JPM), was the lead on a report published earlier today that put a neutral rating on Micrososft shares in light of the deal to acquire the Finnish handset business. In the report, DiFucci brings up Microsoft’s unfortunate hardware history and instability at the top of the company.

Microsoft hardware failure

Microsoft Corporation (NASDAQ:MSFT) has tried many times to get into the hardware business, and its attempts have been—almost universally—failures.  The most recent problems occurred with the company’s Surface Tablet, but there is a decade-long litany of words like Zune and Kin that shake Redmond executives to their core.

The only hardware business that could be judged a success is the company’s Xbox division, but that can only be judged a success in terms of the industry it operates in. Xbox has low margins and high costs and the gaming market remains very unstable and unpredictable. In comparison to the Playstation, the Xbox is doing just as well or better. At Microsoft the business is one of its more successful financial failures.

Microsoft Corporation (NASDAQ:MSFT) is clearly trying to compete with Apple Inc. (NASDAQ:AAPL), and the company is trying to get the consumer loyalty and margins that Apple has enjoyed for years. Microsoft Corporation (NASDAQ:MSFT) seems to be going about the operation backwards, and shareholders selling at $31 are clearly not impressed.

Microsoft smartphones on the way

The Microsoft Corporation (NASDAQ:MSFT) brand does not have much of a cool factor among consumers. The brand has long been associated with the firm’s operating system and its enterprise software. A Microsoft Lumia is not what consumers are looking for.

Microsoft may decide to downplay its own name in favor of selling Lumia branded phones, as it has done with the Xbox in the past. The loss of the Nokia Corporation (NASDAQ:NOK) brand is likely to depress demand for the phones. There’s rough times ahead for Micrososft, and shareholders appear eager to get out before the trial hits in earnest.