Microsoft: No M&As!

By Alex DUMORTIER, CFAFool.com

Stocks are rebounding on Thursday, with the Dow Jones Industrial Average (INDEX: ^DJI) and the broader S&P 500 (INDEX: ^GSPC) up0.70% and 0.69%, respectively, at 12p.m. EDT. The technology-heavy Nasdaq Composite was up0.84%.

Compounding the bear market in China and a Greek crisis that is coming to a head, Wednesday's outage at the New York Stock Exchange, during which the exchange suspended trading in all stocks for roughly four hours becauseof an "internal technical issue,"may have contributed to negative sentiment yesterday (the S&P 500 was down 1.7%).

Continue Reading Below

However, it's worth emphasizing that genuine investors can safely ignore this type of event. First, the equity markets' infrastructure offers plenty of redundancy, soeven hyperactive traders could continue to trade NYSE-listed stocks on multiple other venues, including the Nasdaq and BATS. Second, when something like this occurs, long-term investors can go back to an instructive quote from Berkshire Hathaway (NYSE: BRK-B) CEO Warren Buffett, who said:

In other words, shares represent a minority ownership in a business, and your focusas an investorought to be on business quality and intrinsic value, not stock prices. If you can do that without being distracted, your long-term returns will take care of themselves, regardless of short-term vicissitudes in the market.

Microsoft: No M&As!Microsoft (NASADQ: MSFT) CEO Satya Nadella continues to put his mark on the company -- simultaneously cleaning up an expensive mistake by his predecessor, Steve Ballmer -- as reports surfaced yesterday that the Redmond, Wash., software giant will take a $7.6 billion writedown related to its 2014 acquisition of Nokia's handset business. The acquisition was a poisoned gift that Mr. Ballmer initiated in the month that followed his Aug. 2013 announcement that he would be leaving Microsoft within 12 months.

The writedown wipes out virtually the entire $9.5 billion purchase price, which included the assumption of $1.5 billion in cash. Combined with the elimination of 7,800 jobs (most of them in the handset division), it represents a miserable admission that Microsoft has failedin its ambition to take on Apple and the Android ecosystem in mobile handsets.

The retreat from the handset business is not entirely unexpected. Last month, Microsoft announced that Stephen Elop, Nokia's chief executive at the time of its acquisition, will leave the company. His departure is part of a broader reorganization that included the combination of the engineering teams from the Operating Systems Group and Microsoft Devices Group into a new team, the Windows and Devices Group. Elop had been in charge of the Microsoft Devices Group.

The latest development means two of Microsoft's four largest acquisitions (where amounts have been publicly disclosed) have amounted to lighting money on fire -- to the tune of roughly $14 billion! In 2012, Microsoft wrote down virtually the entire $6.3 billion price paid for digital marketing companyaQuantive.

What were the other two acquisitions? The $8.5 billion purchase of Skype Technologies and the $2.5 billion deal for games maker Mojang -- announced last November under Mr. Nadella's watch. Neither of these appear to be models of good M&A in terms of financial return or strategic sense.

There's a lesson here for Mr. Nadella: Acquisitions, along with all strategic decision-making, ought to focus on building on Microsoft's areas of strength in business and consumer software.

The article Microsoft: No M&As! originally appeared on Fool.com.

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.

Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.