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

Nadella signals dual-use function coming to phones, confirms single Windows OS for all platforms

During an earnings call this week, Microsoft CEO Satya Nadella repeatedly promoted Lumia smartphones running on the Windows Phone platform. The call was just five days after the company announced a record 18,000 layoffs that raised concerns about Microsoft's long-term commitment to its phones.

As he answered questions from analysts, Nadella described a number of coming improvements to Windows Phone and Lumia hardware that include a dual-use functionality to separate work and personal data. As long expected, he also committed to a single Windows operating system for devices of all screen sizes, down from three, in the next release.

Satya Nadella (3)
Satya Nadella

Nadella also described ways that the company was differentiating Windows Phone from competitors by developing apps and features like the new Cortana digital assistant as a means to improve user productivity.

Still, Nadella was somewhat equivocal at one point about the future of phones at Microsoft. "We will responsibly make the market for Windows Phone," Nadella said. "However, we're not in hardware for hardware's sake ... Going forward, all devices will be created with the explicit purpose to light up our digital work and life experiences." He also reiterated Microsoft's -- and his -- mantra "to define our core as the productivity and platform company for a mobile-first, cloud-first world."

Analysts said Nadella's remarks illustrate why it's important for Microsoft to continue selling phones, even though Windows Phone has a small market share.

"You cannot have a 'mobile first' approach without a phone," said Ryan Reith, an analyst at IDC . "That doesn't mean Microsoft has to own the phone, but the platform has to work. I believe they will stick with owning the phone because they went and purchased the (his emphasis) Windows Phone hardware manufacturer ... Overall, it's a sticky subject."

Carolina Milanesi, chief of research at Kantar WorldPanel, agreed that Microsoft can't say it wants to be "mobile-first" without a phone.

"For now, showing off what the Microsoft ecosystem -- and not just the OS -- delivers depends on the hardware they can deliver," she added. "Unless sales pick up, it is hard to get device makers to trust that it is worth investing in the ecosystem."

Nadella's earnings-call comments came less than a week after Microsoft described plans for layoffs of 14% of its work force. Those layoffs will include 12,500 Nokia workers who came aboard after the $7 billion purchase of Nokia was finalized in late April.

When the layoffs were announced, Nadella also said Microsoft would drop Android-based Nokia X phones. Subsequently, reports surfaced that Microsoft has also discontinued the Nokia Asha line of low-cost feature phones.

What Nadella said

During the earnings call, Nadella described how a team of workers is developing dual-use functionality for Lumia smartphones to separate work and personal data. He also indicated a greater focus on the productivity features in Cortana, the digital personal assistant in Windows Phone 8.1, as well as Office Lens, an app introduced in March to use the phone's camera to take pictures of whiteboards and documents to make them readable to save in OneNote.

Nadella also touted Microsoft's Universal Apps initiative, first introduced at the Build conference in April, as a way to entice developers to build apps that work across desktop, tablet and, certainly, phone platforms.

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