Microsoft reveals bankruptcy of devices strategy by dumping Nokia feature phones

Smart and dumb at the same time, but for entirely different reasons, say analysts

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A huge part of that switch from feature to smartphones has been driven by device makers selling Android-based smartphones for less than $100, sometimes considerably less, drastically narrowing the price differential between those models and a Nokia feature phone, which Singh said sold for an average of $35.

In other words, Microsoft saw the writing on the wall and got out while the getting was, if not good, then better than if it had stuck to the feature phone guns.

"Given the hand Microsoft's new leadership team was dealt, I think it's a very smart move," said Singh. "Best to cut your losses now before the unit starts to bleed money."

Nor was it a shock to the experts that Microsoft decided to shutter Nokia's feature phone division rather than, say, try to spin it off or sell it.

"Is there a possibility of selling off the core of that business? Perhaps, but it would likely have to go 'on the cheap,' as who wants to buy a business that you don't want to run?" asked Gold. "An acquiring company could get the Nokia brand and a distribution channel, which could be very valuable for a newcomer in the market, perhaps one from the Far East who wants to go worldwide. But they would pay far less than the price Microsoft bought it for."

But by dropping such a huge part of Nokia -- half its employees, the biggest driver of unit sales -- Microsoft showed the bankruptcy of the "devices and services" strategy that Ballmer used to justify the acquisition.

"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

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at  @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

Copyright © 2014 IDG Communications, Inc.

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