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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.

"Ballmer had the idea of being a devices and services company to compete head-to-head with Apple, and to a lesser extent Google," said Gold. "This was not a well thought-out plan, and the new management rightly understands it won't work."

"I never thought that the move [to acquire Nokia] was the right move," asserted Golvin. "I understood the logic and motivation, that Microsoft and Windows and its services need to be on mobile phones and tablets, but Microsoft believed it was faced with a choice of either buying Nokia or not having a presence in mobile. I don't think that was really the choice. There were other things they might have been able to do."

Among those alternate universe options, said Golvin: Foregoing Windows Phone licensing fees, as it ended up doing months later, but making that policy permanent, which the current practice may not be, and doing it much earlier.

As it turned out, Microsoft spent billions to buy Nokia, then 11 months after the announcement, three after the deal closed, it must spend another big chunk of money shuttering most of the acquisition's assets.

"They got a few engineers and some technology, but mostly they got burdened with a manufacturing organization that was in decline," said Gold. "And now Microsoft will have to spend even more shutting down plants and laying off workers."

In a a filing with the U.S. Securities and Exchange Commission (SEC) last week, Microsoft said it expects to book pre-tax charges of $1.1 billion to $1.6 billion over the next four quarters to account for its downsizing. The bulk of that -- $750 million to $800 million -- will go for severance and related benefit costs, while between $350 million and $800 million will take care of what it called "asset-related charges."

Microsoft declined to comment when asked about the purported Harlow memo. "Microsoft Devices does not comment on market rumors or speculations -- right now we can only confirm what Microsoft announced publicly regarding their plans for the future," a spokeswoman said via email today.

Nadella, is expected to reveal more about his future plans during Tuesday's earnings call with Wall Street analysts. That call will start at 2:30 p.m. PT, 5:30 p.m. ET

 

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