Elop Should Not Be The Next Microsoft CEO

| About: Microsoft Corporation (MSFT)
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The rumors have flown the last few weeks that Stephen Elop, former Nokia (NYSE:NOK) CEO, could possibly be in position to resume leadership of Microsoft (NASDAQ:MSFT) as CEO. For the next couple years, Nokia and Microsoft will obviously maintain strong ties due to contractual obligations under Microsoft's controversial acquisition of Nokia's mobile device segment. It only seems natural that Elop has been named by numerous sources as a likely replacement despite Nokia's misfortune of lagging smartphone sales and questionable, possibly even inappropriate, decision making. Does Elop really have a chance of reigning as the next Microsoft CEO? Yes. Should he be? No.

Nokia Floundered Under Elop

Stephen Elop joined Nokia in September 2010, and the stock steadily declined until the recent acquisition news. In three years, the company has continued to struggle financially as it failed to make significant steps forward in the smartphone market. As of June 2013, Nokia's mobile phone market share dropped from 23.4% to 14.8%, and their smartphone market share stumbled from 11.7% to 8.8%. The company stock value has dropped by 70% since Elop's takeover. That kind of CEO history will not inspire investors or employees of Microsoft.

Stock prices dropped from almost $11 to about $4 during Elop's reign. Once Microsoft's acquisition was announced, the stock topped out at $5.58.

Questionable Decision Making

In February 2011, Elop officially announced the new strategy for Nokia, which included the discontinuation of both in-house mobile operating systems, and shifting its smartphone strategy to Microsoft's Windows Phone. Elop stated the reason for switching to Windows instead of Android: "Entering the Android environment late, we knew we would have a hard time differentiating."

As an entrepreneur, "differentiating" sounds like a very smart plan to me - unless that equates to inferiority, with which Windows has major weaknesses compared to Android and iOS. Sure, through persistence, Nokia eventually owned the Windows market but at what cost? Even some Android-focused companies have faced great difficulties selling devices, but the base of Android consumers is gigantic, and we can argue that Windows severely weakened Nokia's reach and may have led to a cheap acquisition for Microsoft.

This brings up another disturbing idea that I, and likely every Nokia investor out there, cannot help thinking. Stephen Elop, former Microsoftian, really was indeed a mole, or trojan horse, from the very beginning. Just six months after Elop joined Nokia as CEO, the Finnish company shifted its handset business onto Microsoft's Windows Phone operating system, as some in the press actually did ask if he was some sort of Trojan Horse. He waved away this talk. But now we have to wonder.

Other interesting candidates for Microsoft's CEO

Julie Larson-Green, known for her poise and diplomacy, has been a Microsoft employee since 1993, and has worked both hardware (Xbox, Surface) and software (Office, Windows). She managed the implementation of the innovative ribbons menu system in Microsoft Office 2007. Currently, she is the Executive Vice-President of the Devices and Studios group, and has been greatly involved in driving the company's new direction.

Satya Nadella, a 22 year Microsoft veteran recruited from Sun Microsystems, started out as senior vice president of R&D for the Online Services Division and vice president of the Microsoft Business Division. Later, he was promoted as president of Microsoft's $19 billion Server and Tools Business and led the transformation of the business and technology group from client-server software to a cloud-based infrastructure.

Terry Myerson is credited for scrapping Microsoft's Windows Mobile product in favor of a completely rebuilt system designed to better compete with the iPhone, Myerson was promoted to lead the Windows Phone operation in 2011. Myerson restructured the mobile team, and was responsible for hiring Joe Belfiore, who later redesigned the Windows Phone interface. Myerson was also instrumental in connecting Microsoft with Nokia's hardware division. In July 2013, Myerson was promoted to executive vice president of Microsoft's new operating systems engineering division. The Verge called Myerson "the most important man at Microsoft" after the company's executive reorganization.

Many more names are available here. I thought the aforementioned people the most interesting.

Why Elop's name keeps coming up

A prior article on Seeking Alpha has already adequately examined why Stephen Elop may become the next Microsoft CEO, but I felt it necessary to quickly recap the key points.

Committed to Microsoft - Elop controversially formed a deep relationship with Microsoft by exclusively selecting Windows as Nokia's mobile OS and supporting Microsoft. Now Elop will be heading back to Microsoft as Executive Vice President.

Former "Microsoftian" - Elop is a Microsoft alumnus and understands the Microsoft way and culture. Even during his tenure at Nokia, Elop has remained close to Microsoft, so much so that he was accused of being a Microsoft mole, which we've already covered.

Understands the hardware and software - Since Nokia manufactured smartphones exclusively based on Windows Phone, Elop should know the strengths and weaknesses of Microsoft's mobile ecosystem inside out. Elop's invaluable experience on the hardware side of the mobile devices market would be difficult to match for many of Microsoft's internal candidates for the coveted position.

This is an exciting time for Microsoft.

With bold moves (and to Microsoft's pleasure), Nokia finally started showing signs of hope as Windows 8.1 approaches and while Windows slowly increases in marketshare in some regions. The company released some very nice phones (Lumia series) lately and is adding a new tablet / phablet line soon (about which I've expressed dismay but now it is irrelevant). All this is good news for the software giant as the acquisition preserves Window's momentum of gaining marketshare.

With Steve Ballmer's impending retirement from Microsoft, a new excitement emerges, which is evident by the stock popping 7% the day Ballmer made the announcement. Most of that bump has reversed by now, but still represents the overall sentiment towards Microsoft's future. The company has made huge strides with creating a cloud-based environment, is close to releasing Xbox One and Windows 8.1 and continues to horde cash ($77 billion before the acquisition) even as desktops decline in popularity.

To me, only one thing is clear. Stephen Elop should not become the new Microsoft CEO. It's risky and controversial yet too conservative for a company struggling with gripping the future. However, at the current prices, both companies are interesting options for long investors.

Disclosure: I am long NOK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.