Microsoft's Nadella pledges to stick with smartphones, yet sees mobile strategy as broader than phones

Microsoft (NASDAQ: MSFT) CEO Satya Nadella reaffirmed his commitment to the smartphone market and said that Microsoft has a broader view of its mobile strategy than just building phones itself. The comments, in an interview with ZDNet, come a week after the software giant said it would cut around 7,800 jobs, mostly from its phone business, and record an impairment charge of around $7.6 billion related to its purchase of Nokia's (NYSE:NOK) devices and services business.

Many analysts and commentators said that the job cuts and the writedown demonstrated that Microsoft was cutting its losses and exiting the mobile business, and that its purchase of Nokia's hardware unit had been a flop. More than a year after Microsoft took over the phone unit of what had been the biggest maker of Windows-based phones, Microsoft does not have much to show for it. According to research firm IDC, in the first quarter of 2015, Google's (NASDAQ: GOOG) Android commanded 78 percent of the global smartphone market, Apple's (NASDAQ: AAPL) iOS had 18.3 percent and Windows had 2.7 percent.

In announcing the job cuts, Nadella said Microsoft will focus on building smartphones for three main categories: for business users, entry-level phones for value phone buyers and flagship phones for "Windows fans." Nadella said Microsoft will release "premium" phones this year. However, Microsoft is certainly scaling back its manufacturing of phones and how many it releases every year.

Yet Nadella answered "not at all" when asked if the decision to scale back meant Microsoft is getting out of the mobile market. "Quite frankly I think it's sort of about the lens through which you view what's happening. I view the mobile opportunity, even today in its broadest sense, and in the future, as being richer," he said.

Nadella said he wants to "be present on every mobile endpoint," which means not just having Microsoft applications like Skype and Outlook and Office on smartphones from other platforms, but also its cloud services for both consumer and enterprise devices. He also said that Windows 10, the company's forthcoming software platform, is the platform that will run every device from phones to PCs to its HoloLens virtual reality headset. The platform also supports Universal Apps that can run on all of those devices.

"If anything, one big mistake we made in our past was to think of the PC as the hub for everything for all time to come. And today, of course, the high volume device is the six-inch phone. I acknowledge that," he said. "But to think that that's what the future is for all time to come would be to make the same mistake we made in the past without even having the share position of the past. So that would be madness."

Nadella said "last week's announcement was not about any change to our vision and strategy, but for sure it was a change to our operating approach. The way we're going to go about it. I'm not going to launch a phone a day. I'm going to focus on a few phones that actually grab share that, in fact, showcase our uniqueness."

"When you have three percent share of that (phone market), but you also have a billion desktops, you have Xbox, you have innovation in HoloLens; you have Band. It's a graph. It's not any one node," he added. "It is the entirety of the device family. And I want to be able to think about our strategy, our innovation, and progress as one."

Nadella highlighted a new Windows 10 feature called "Continuum for Phones," which lets Windows 10 smartphones turn into desktop PCs when connected to larger screens; the feature had been available for tablets. He said that feature is one of the things he wants Windows to stand for.

"For sure there is a form factor today which is the below six or seven inches, which is powered by a very specific operating system instance of Windows 10, which is Windows Mobile," he said. "But what do you call that (device) when you use Continuum and then you're using applications on a big screen with a mouse and keyboard? It's Windows 10. That's why I like to think about Windows 10 as not being bound to any one form factor."

"In my case I have a Band. I have my phone. I have my Surface. I have my Surface Hub and I'll have a HoloLens. And that to me is all Windows 10. And I'll seamlessly move between all of these. I want the notifications to flow between all of these. I want my data and apps to flow between all of these things," he said.

The challenge for Microsoft is getting other OEMs like Samsung, HTC, Micromax and ZTE to make and market Windows-based phones. But Nadella seemed to indicate that Microsoft would press ahead with its mobile strategy even without the support of other smartphone makers. "If no OEM stands up to build Windows devices, we'll build them," he said. "There will be Lumia devices. So I'm not afraid of saying, okay, it's all about the OEMs, or it's all about the ecosystem. It's about Windows. It is about the overall health of Windows and being grounded in any given day's reality, but having ambition of where the market is going versus being bound by current definitions."

"If there are a lot of OEMs, we'll have one strategy. If there are no OEMs, we'll have one strategy. We are committed to having the phones in these three segments," he said, referring to business, value and premium. "And I think the operational details will become clear to people as they see it. I want people to evaluate us on the phones that we produce, but not the inside baseball--what are we doing to produce--because that should not be relevant to our broad consumers. It may be relevant to people like you who are critiquing us. That's OK. But what matters to me is what customers care."

Interestingly, Nadella said the free upgrade to Windows 10 for Windows 7 and 8 users "is meant to improve our phone position" because "all of this comes down to how are you going to get developers to come to Windows. If you come to Windows, you are going to be on the phone, too. Even if you want to come to Windows because of HoloLens, you want to come to it because of Xbox, you want to come to the desktop, all those get you to the phone. It's not about let's do head-on competition. That will never work. You have to have a differentiated point of view."

For more:
- see these two separate ZDNet articles
- see this The Verge article
- see this Mashable article
- see this Daily Telegraph article

Related articles:
Microsoft receives brutal criticism for Nokia device acquisition writedown
Microsoft to slash 7,800 jobs, mostly in phone unit, as smartphone efforts falter
Microsoft devices chief Elop to leave company in executive shakeup
Microsoft to bring its Cortana digital assistant to Android and iOS
Microsoft faces uphill climb convincing iOS and Android developers to port apps to Windows 10
Microsoft won't bring Windows 10 to phones this summer - rollout will be after PCs

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