Is Microsoft's Mobile Strategy at All Feasible?

Microsoft's (NASDAQ: MSFT  ) mixed performance during the recent fourth quarter was largely affected by its acquisition of Nokia's (NYSE: NOK  ) mobile business. On the plus side, the division contributed around $2 billion to its quarterly revenue that increased by 17% on a year-over-year basis to remain ahead of Street estimates. However, the business also resulted in an operating loss worth $692 million for the company, pulling down net profits by 7.1% on a year-over-year basis to $0.55 per share. That remained way behind analyst expectations of $0.60 per share. 

However, Microsoft seems to have already anticipated these losses, as management recently announced its decision to eliminate a massive 18,000 jobs, 12,500 of which fell under the Nokia division. The company followed it up with further plans to curb operating costs for the current fiscal year.  

Despite these measures, the core problem for Microsoft remains unchanged as sales of Windows-based mobile devices continue to lag heavily behind those of rivals such as Apple (NASDAQ: AAPL  ) and Samsung Electronics in the global market. And that, in turn, puts a big question mark on the company's chances of success in a mobile-centric world.

The good things first
Microsoft's mobile strategy certainly seems to have its own share of bright spots. The company recently decided to stop further production of its low-end Nokia X line of smartphones powered by Google's Android operating system. This was indeed a smart move, as these phones did little other than popularize Android at the expense of its own Windows operating system.

But then, with emerging markets becoming the new hotspots for smartphone sales these days, Microsoft prudently decided to replace these phones with low-cost Lumia handsets instead. That helped the company integrate them with the overall Windows ecosystem, apart from continuing with its strategy of reaching out to consumers in such markets. The recent launch of the affordable Lumia 530 has already set the ball rolling in this direction. 

And the sad part
However, one cannot deny the fact that Nokia X phones have ultimately been nothing but part of a botched attempt by Microsoft to gain more share of the low-end consumer segment in emerging markets. And the situation has been further complicated by the presence of a slew of cheaper Android-powered handsets in such regions.

On the other hand, industry rival Apple has managed to record a 48% rise in sales for its iconic iPhones in China, the biggest emerging market of them all, during its recent third quarter. This has enabled the company to attract an entirely new high-end consumer segment in that region despite stiff competition from Samsung and other local phone manufacturers.

The other side of the story
On the bright side, Microsoft recorded a significant improvement in other business categories that include Office 365, the online version of its Office software and Azure cloud services. The company is also reaping the benefits of the recent global business PC refresh cycle that led to a 10.5% year-over-year increase in sales for its regular Office and Windows operating software during the quarter. 

Foolish final thoughts
At $7.2 billion, Nokia's phone making unit has turned out to be an expensive acquisition for Microsoft, and investors are likely to keep a keen eye on the execution of its future mobile-related plans. At the same time, the healthy improvement in the company's other businesses should give it more breathing space as it realigns its strategies on this front. With research firm IDC predicting the share of Windows phones to increase to 6.4% in 2018 from 3.5% in the current year, Microsoft's smartphone venture may ultimately turn out to be a successful one after all.

While this company does seem to have long-term potential in the mobile arena, it's still too early to reach any conclusions; one can only sit back and watch the developments from the sidelines.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 31, 2014, at 11:22 AM, Drichter wrote:

    Against all odds, they are still growing. That should speak for itself, for the large majority of people who haven't really tried their mobile products yet.

    Of course, those who have already know why!

  • Report this Comment On August 11, 2014, at 6:00 AM, DZPM wrote:

    Nokia is not any more in handset phone business it is history sold to Microsoft Corporation for 7.2 Billions so don’t right about history right what is now you morons. Nokia is sitting now on lot of cash with potential for good Acquisition and substantial Gross Nokia is now in Network Equipment and Patent Licensing Business.

    Starting 07/28/2014 to 08/08/2014 Nokia corporation acquisition of own share (share buyback) So far Nokia Corporation buy in 10 sessions 5 Million Share for 8.213293 Euros

    Nokia Corporation reported on 07/24/2014 it will buy back 370 Millions Share about1.25 Billion Euros

    365 Millions Share to go Nokia is going nowhere but up in les then two month $12. I am with NOK 100%

  • Report this Comment On August 11, 2014, at 9:54 AM, DZPM wrote:

    Nokia is not any more in handset phone business it is history sold to Microsoft Corporation for 7.2 Billions so don’t writes about history wrights what is now you morons. Nokia is sitting now on lot of cash with potential for good Acquisition and substantial Gross Nokia is now in Network Equipment and Patent Licensing Business.

    Starting 07/28/2014 to 08/08/2014 Nokia corporation acquisition of own share (share buyback) So far Nokia Corporation buy in 10 sessions 5 Million Share for 8.213293 Euros

    Nokia Corporation reported on 07/24/2014 it will buy back 370 Millions Share about1.25 Billion Euros

    365 Millions Share to go Nokia is going nowhere but up in les then two month $12. I am with NOK 100%

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