The lacklustre mobile phone business of Microsoft Corporation (NASDAQ:MSFT) seems to have taken a toll on the company. Rumours are buzzing that Microsoft is likely shut down its feature phone business and license the Nokia brand to Foxconn. The dismal sales performance of Microsoft’s feature phone, which sold a mere 15 million units in Q1 2016 may be one of the prime reasons. The company, however, still holds the rights to use Nokia’s name until 2024.
Chinese site VTech also reported that apart from selling their feature phone business to Foxconn, Microsoft is likely to move their smartphone business to Surface team and lay off 50% staff of the mobile division. Since 2014, after acquiring Nokia Microsoft has laid off 18,000 employees.
Microsoft reportedly earns a lot more from licensing its patents to Android devices manufacturers, like HTC and Samsung, than selling its own smartphones. Even after years of market existence, Microsoft’s Windows Phone has failed to capture a double-digit share of the global mobile phone market.
Microsoft Phone segment suffered the most in fiscal Q3 2016 (calender Q1 2016) as the revenues declined 46% YoY. The performance of the phone division looks dimmer when we look at the sales figures by the number of units sold; Microsoft sold 8.6 million units Lumia phones in Q3 2015 whereas in Q3 2016 the numbers tumbled measurably by 73% to 2.3 million units.
Why Could Microsoft sell its feature phone segment?
The prime reason for selling its feature phone segment is declining sales. Smartphones are gradually eating into the feature phone market even in the developing countries like India and Africa, where feature phone penetration is still quite deeper. India, the emerging smartphone market in the world, recently surpassed the US to become the second largest country by the number of smartphone users, accounting 239 million users.
The lowering ASP (Average Selling price) of smartphones in India has affected the sales of feature phones. Even in the developed markets like Europe, the number of smartphone shipments surpassed feature phones by a huge margin over the years. Europe’s share of global feature phone market shrunk to mere 10% in 2015 from 21% in 2008, whereas the country’s share of the global smartphone in 2015 clocked at 18%.
Lumia’s Dry Run Has Forced Microsoft To Experiment Again
Apparently, after the dismal performance of Lumia smartphone series, Microsoft has decided to end the segment. The tech honcho is reportedly working on surface phones which will boast a powerful hardware akin to a normal PC. The cutting-edge device is still in the development stage tough and we have to wait until next year to have a glimpse of the new avatar of Microsoft’s phone.
Microsoft had a difficult time carving a niche in the smartphone market dominated by Android and iOS powered smartphones. Windows Phone comprises of a tiny 4.03% of the total Operating System market share in mobile and tablet category. In spite of various attempts, Lumia brand smartphone was not able to pull off a magical performance for Microsoft. Above all, the acquisition of Nokia brought nothing but nightmares for Microsoft as the company had to write off $7.2 billion invested in one of the most hyped acquisitions.
Bundle of Mistakes
Firstly, the disappointing sales performance of Windows phones made app developers shy away from investing their time and efforts on Windows platform. Even major brands and products didn’t see Windows app as one of their main priorities and stuck to Android and iOS. Due to the absence of many major apps, Windows failed to lure smartphone users and Lumia smartphones sales never took off.
Secondly, in 2011 Symbian platform started losing its supremacy to Android and it was too late for Nokia to pull up the socks. Nokia launched its first Windows-powered smartphone only in October 2011 when Android and iOS platforms were already holding a lion’s share of the market.
Lastly, the insane pricing strategy of Windows smartphones that proved to be the last nail in the coffin. Despite low configuration and slow adoption, Microsoft didn’t compromise with its margins.