Earlier this week Microsoft announced a restructuring of its phone hardware business, and it has been reported with much doom and gloom. In fact most of what you can read from major news sources seems to be eulogizing. It’s early days, and the consequences of the restructuring will take a while to be felt to their full extent. Essentially Microsoft is writing off it’s acquisition of Nokia’s phone business at a cost of $7.6 Billion US, to continue on it’s CEO’s, Satya’s Mobile/Cloud first trajectory. Consider that the total write off is more than the original acquisition!
Microsoft Corp. today announced plans to restructure the company’s phone hardware business to better focus and align resources. Microsoft also announced the reduction of up to 7,800 positions, primarily in the phone business. As a result, the company will record an impairment charge of approximately $7.6 billion related to assets associated with the acquisition of the Nokia Devices and Services (NDS) business in addition to a restructuring charge of approximately $750 million to $850 million. [News Microsoft]
There seems to have been a constant call for drastic restructuring since Windows 8, and the negative reception that it received from both press and consumers. Possibly Microsoft’s approach while still under the reign of Steve Ballmer was too forward thinking, or it was the straw that broke the camels back. Either way, the direction that Microsoft is taking under Satya’s early tenure, seems to be more realistic and focused. Although you have to think, wouldn’t it be lovely to have a couple of billion dollars to throw around, let alone “write off”!
There’s probably one ray of hope in the situation, and that comes in an email Satya Nadella set out to staff to clarify the vision going forward.
In the near term, we will run a more effective phone portfolio, with better products and speed to market given the recently formed Windows and Devices Group. We plan to narrow our focus to three customer segments where we can make unique contributions and where we can differentiate through the combination of our hardware and software. We’ll bring business customers the best management, security and productivity experiences they need; value phone buyers the communications services they want; and Windows fans the flagship devices they’ll love
So that’s a plan, more security for business users, while maintaining some sort o range of budget phones to keep a toehold in emerging markets. Of course there will be flagship phones to keep the fans happy as well. It reads as a narrowing of where the Windows Phone/Mobile business is heading. Not forgetting that it is being consumed by the Windows 10 push as Microsoft tries to get back to what it does best, software. The lack of direction in the early stages of Windows Phone, considering the Windows 7 to 8 transition, windows phone 7 to 8 debacle, it would seem pointless for Microsoft to keep pushing what is a poor third in the mobile market
Was Microsoft meant to become a hardware manufacturer? At this point it seems not. It would seem more likely that Microsoft would keep making phones under it’s banner, including some peripherals, but not indefinitely. There’s a real need for Microsoft to focus on the software, and sell it to OEM’s to keep the phone end of their mobile strategy going. Microsoft may keep making phones as reference devices for a while, but for how long is hard to project.
Inundating markets with cheaper handsets with little differentiation doesn’t seem to have worked in terms of growing the Windows Phone overall market share. Yet, Surface has become hardware that certainly seems to be destined to stay in the portfolio, and keep maturing. Then again, Microsoft isn’t really competing with the surface, it’s offering a top of the range touch experience for users, that leaves PC OEM’s a level at which to strive to equal.
I am committed to our first-party devices including phones. However, we need to focus our phone efforts in the near term while driving reinvention. We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem that includes our first-party device family.
So where does this leave us in terms of devices going forward. Firstly there will be less, from reports Microsoft will only manufacture approximately six devices per year. Assume a balance between what was stated above, two flagship, two mid-range and two budget phones would seem to fit nicely. That could vary according to perceived market needs, but it would be nothing like the proliferation of models that we have seen over the last year.
The outcome is a long way from what fans and Microsoft would have liked at the launch of Windows Phone. Will Windows 10 Mobile be able to elevate the hardware business to a stage where it is sustainable past the next couple of years?
Windows 10 and it’s universal app platform, may prop up the store to make the mobile OS viable, but how many users will move on in the meantime?