Microsoft preps new Lumia smartphones, but phone ambitions have dimmed

Microsoft (NASDAQ: MSFT) is expected to announce new flagship Windows smartphones at an event in New York City tomorrow that will likely be dubbed the Lumia 950 and 950 XL. While the device names and their specifications have largely leaked, what's unclear is how Microsoft is going to position the phones as part of its broader mobile strategy. According to the Wall Street Journal, after years of floundering in the mass-market smartphone wars, Microsoft is likely going to try to redefine success by focusing on market niches.

According to research firm Gartner, Microsoft captured 2.5 percent of the global smartphone market in the second quarter, down from 2.8 percent a year ago. In the U.S., Apple's (NASDAQ: AAPL) iOS and Google's (NASDAQ: GOOG) Android dominate the market. However, according to a recent report from Opera Mediaworks, in countries like India, Indonesia, the Philippines and Vietnam, there is a sizable chunk of the population -- around a third or more -- that do not use Android or iOS as their smartphone platform, suggesting that in some markets Microsoft and other platforms are gaining traction.

Microsoft said in July said it would cut around 7,800 jobs, mostly from its phone business and CEO Satya Nadella has said Microsoft will now focus on building smartphones for three main categories: for business users, entry-level phones for value phone buyers and flagship phones for "Windows fans."

Key to Microsoft's success in phones and in mobile more broadly is Windows 10, its new software platform, which is designed to will run every Windows 10 device from phones to PCs to its HoloLens augmented reality headset. The ability to move seamlessly via the cloud between PC work and the phone remains one of Windows 10's key selling points.

Microsoft no longer expects to control around 15 percent of the smartphone market by 2018, as it did when it first announced its purchase of Nokia's (NYSE:NOK) devices and services business two years ago, the Journal noted. In July the software giant reported a $7.5 billion writedown on the deal. Microsoft's dimmed ambitions in phones, which include focusing on the enterprise segment and being more efficient tin the entry-level market, reflect these realities, some analysts said.

"They don't have the demand to be big scale," Canaccord Genuity analyst Michael Walkley, told the WSJ. "It's almost where they had to go."

The silver lining is that if Microsoft can spur widespread adoption of Windows 10, that could renew interest in its phones. "Microsoft has a greater opportunity than people realize," Forrester Research analyst J.P. Gownder told the Journal.

Microsoft aims to have Windows 10 installed on 1 billion devices by mid-2018, and Microsoft is also letting developers who have written apps for Android and iOS port those apps to phones and tablets running Windows 10. Microsoft has also hedged its bets by making its Office applications and Cortana digital assistant available on other platforms.

"The best thing for Windows phone devices is Windows 10 use," an unnamed source familiar with Microsoft's strategy told the WSJ.

For more:
- see this WSJ article (sub. req.)

Related articles:
Microsoft expected to unveil flagship Lumia 950, 950 XL phones at October event
Microsoft to shutter former Nokia plant in Salo, Finland, and axe 2,300 jobs in the country
Microsoft sees drop in phone revenue as Nadella pledges more efficiency for entry-level smartphones
Microsoft's Nadella pledges to stick with smartphones, yet sees mobile strategy as broader than phones
Microsoft receives brutal criticism for Nokia device acquisition writedown
Microsoft to slash 7,800 jobs, mostly in phone unit, as smartphone efforts falter

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