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How Microsoft's CEO sees growth for Windows Phone and Lumia

Matt Hamblen | July 29, 2014
Nadella signals dual-use function coming to phones, confirms single Windows OS for all platforms.

Regarding Universal Apps, Nadella described the concept as a way to attract developers to Windows Phones under the "mobile-first, cloud-first" mantra he has laid out. If an app runs on a desktop and can also run on a tablet or smartphone, it gives the developer access to more than 300 million devices, including desktops and laptops, worldwide.

"That's really the reason why we are actively making sure that universal Windows apps is available and developers are taking advantage of it," Nadella said.

Many analysts believe the biggest deterrent to the success of Windows Phone is because the mobile operating system has access to fewer than a third of the number of apps available for either Android or iOS.

As expected, Nadella also confirmed that Microsoft will "streamline the next version of Windows from three operating systems into one, single converged operating system for screens of all sizes." He said more information will be available in "the coming months."

Microsoft said it sold 5.8 million Lumia-branded phones from the time of the Nokia acquisition to the end of the fourth quarter, and that they contributed $1.99 billion in revenues. Lumia device sales were primarily in the lower-priced Lumia 500 and 600 series, the company said.

Costs related to the acquisition of Nokia resulted in a loss of $692 million on the $1.99 billion in revenues. The deal also reduced profits by 8 cents a share. The Nokia business is now called Phone Hardware within Microsoft. It should break even by fiscal year 2016, Microsoft predicted.

Still, some analysts are skeptical

"Nadella was clear in his direction of Windows, including one Windows for all screen sizes and form factors. I think they still have a future in mobile, but that future is limited," said Jitesh Ubrani, an IDC analyst.

"That said, in the past, Microsoft was infamous for the infighting that took place between various business divisions. It seems that some of that, probably to a much lesser degree, will still exist. It's tough to be a hardware player and lock in consumers into your ecosystem when you are trying to expand the services business and appeal to a broad audience on multiple platforms."

With Windows Phone, Microsoft is trying to play to its strengths with budget smartphones like the low-cost Lumia 530, Ubrani added. "I think this [low-cost phone] strategy is enough to keep them in the running, but I wouldn't expect any significant changes in the overall market.

Jack Gold, an analyst at J. Gold associates predicted when the layoffs were announced that Microsoft would sell off its phone business within 18 months. After the earnings call, he said he was "skeptical" Microsoft can make its phones profitable by 2015/16 as Microsoft has predicted.


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