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Microsoft reveals bankruptcy of devices strategy by dumping Nokia feature phones

Gregg Keizer | July 22, 2014
Smart and dumb at the same time, but for entirely different reasons, say analysts.

nokia feature phone

Microsoft was right to ax the feature phone business it inherited when it bought Nokia's handset business for US$7.2 billion, analysts said today.

But while it was the smart move, it was also incredibly dumb: The vast portion of Nokia's unit sales were not in Lumia smartphones, as Microsoft might have people believe, but in the ultra-cheap old-style phones that are still used by billions around the world.

"In my opinion, most, if not all, of the investment in Nokia went for naught," said Jack Gold, principal analyst at J. Gold Associates, in an email reply to questions today.

Why? Because there's little money to be made in so-called "dumb" phones, which in polite company are called "feature" phones, or even simply "mobile" phones to differentiate them from touch-based, computing-in-a-pocket smartphones.

"I don't think the new management has the desire to be a full-service competitor in the smartphone market, and certainly not in the volume feature phone market where it's even harder to make money," said Gold in explaining his take. "Nadella and company looked at the business model for phones [of any kind] and decided, rightly so in my opinion, that there is very little if any money to be made there."

Along with the job cuts Microsoft announced last week -- showing the door to about half of the former Nokia employees -- the company also said it would bail out of the feature phone business. On Thursday, BGR India published what it said were excerpts from a memorandum penned by Jo Harlow, who heads Microsoft's phone side, part of the Devices group led by former Nokia CEO Stephen Elop.

"With the clear focus on Windows Phones, all Mobile Phones-related services and enablers are planned to move into maintenance mode, effective immediately," Harlow wrote. "This means there will be no new features or updates to services on any Mobile Phones platform as a result of these plans."

No services means no phones, not the kind of feature phones that Nokia has sold, and still sells.

The replacement for the dumped feature phones will be Lumia-branded, low-priced smartphones running Windows Phone. "We will be particularly focused on making the market for Windows Phone," Elop said in his public message to the Devices group on July 17. "We plan to drive Windows Phone volume by targeting the more affordable smartphone segments, which are the fastest growing segments of the market, with Lumia."

He didn't mention the feature phone side of Nokia; nor did CEO Satya Nadella in a separate, shorter email to employees.

None of the analysts contacted by Computerworld was surprised by the vanishing act. "I've expected this," said Sameer Singh, of Tech-Thoughts. "Nokia's feature phone business did have high volumes, but the profit margins had become razor thin because of strong competition."


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