Microsoft (NASDAQ:MSFT), in the middle of swallowing partner Nokia's (NYSE:NOK) handset business and transforming itself into a devices and services company, faces challenges but has a clear path ahead of it, according to outgoing CEO Steve Ballmer and other executives.
Speaking Thursday at Microsoft's meeting with financial analysts, Ballmer and other executives said that they expect Microsoft to be more focused on converging hardware and software solutions and thinking of mobile-centric devices.
Microsoft captured 3.3 percent of the global smartphone market in the second quarter, according to research firm Gartner. That was up from 2.6 percent in the year-ago quarter. The platform also trails Google's (NASDAQ:GOOG) Android and Apple's (NASDAQ:AAPL) iOS in terms of apps, though Microsoft Executive Vice President Terry Myerson, the head of Microsoft's newly converged operating system division, said the platform now has 49 of the top 50 asp (presumably the missing one is Instagram, which is still unavailable for Windows Phone).
"We understand where we are at," Myerson said, according to AllThingsD. "We have a plan and are making progress."
Ballmer, who plans to leave the CEO post within a year, told analysts that Microsoft will perform better in the future by having its business, consumer, software and device units work together. "Hardware and software will kind of need to evolve together," he said, according to Bloomberg.
Ballmer also Microsoft won't be "religious" about having its services work only with Microsoft hardware, and will continue offering them on smartphones and tablets from Apple and Google.
Also in Microsoft's future: More Windows devices running chipsets based on designs from ARM Holdings, as most smartphones are today. Myerson said the lines between phones and tablets are blurring. "Windows RT was our first ARM tablet," he said, according to ZDNet. "And as phones extend into tablets, expect us to see many more ARM tablets, Windows ARM tablets in the future."
Many analysts said Microsoft faces steep challenges in making hardware a more central part of its business. "The challenges are fairly obvious and the questions are about how to execute," Sid Parakh, an analyst at McAdams Wright Ragen in Seattle, told Bloomberg. "They've laid out a strategy of being more of a devices- and services-focused company, and started to execute on that. Nokia is part of that. Investors can debate whether that's the right approach, but regardless, the company is going to move on."
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