Four years after the launch of Windows Phone and two years after the release of Windows 8/RT operating systems – the platforms designed specifically for smartphones and tablets – Microsoft Corp. still cannot capture any significant part of the mobile computing market. Even after the company started to sell its own tablets and acquired Nokia’s devices and services division, sales of Microsoft’s Surface and Lumia hardware remain low. It looks like the company's mobile strategy has completely failed.
Lumia Sales Stagnating
Shipments of Nokia Lumia devices have been stagnating for well over a year after they increased to 7.4 million units per quarter in the Q2 2013. During the fourth quarter of fiscal 2014 (which ended on June 30, 2014) Microsoft sold 7.9 million Lumia smartphones, according to estimates based on the company’s financial report and some extrapolations*, which is slightly higher than 7.1 million units in the first quarter of calendar 2014**. Shipments of Lumia in the Q2 2014 were up 6.75% over-the-same period a year ago.
The worldwide smartphone market grew 23.1% year over year in the second quarter of 2014, establishing a new single quarter record of 295.3 million shipments, according to International Data Corp. Following a very strong first quarter, the market grew 2.6% sequentially, fuelled by ongoing demand for mobile computing and an abundance of low-cost smartphones.
At present sales of Lumia smartphones based on Microsoft’s Windows Phone operating system are lower than sales of Nokia Symbian smartphones in the first quarter of 2011. Microsoft is well behind the market in terms of year-over-year growth and it does not look like the situation will get any better. The company is going to cease sales of feature phones, Asha low-end smartphones and Nokia X devices in the next eighteen months, further cutting-down potential user base for the Lumia family.
Surface Sales Still Slow
Shipments of Microsoft Surface tablets are also not very strong. In the Q4 of FY2014 (which is calendar Q2 2014) revenue that Microsoft reported for its Surface tablets was $409 million, down 18% compared to the previous quarter and a staggering drop from the Q4 2013***.
Traditionally, sales of personal computers and other devices increase in the second quarter compared to the first quarter, therefore, it is unclear why sales of Microsoft’s Surface slates dropped noticeably in the Q2 2014. The worldwide tablet market grew 11.0% year over year in the second quarter of 2014 with shipments reaching 49.3 million units according to IDC. At the same time, shipments of tablets declined sequentially from Q1 2014 by 1.5%, according to the analysts.
For the whole fiscal 2014 year sales of Microsoft Surface tablets totalled $2.196 billion, which means that the company sold around four million units at $550 average selling price.
The End of Windows and the Beginning of the Cloud?
With Microsoft’s mobile operating systems commanding around 2% - 3% of smartphones and 1% - 2% of tablets worldwide (according to IDC and other market analysts) it is pretty obvious that the company’s mobile platform strategy has failed. Google’s Android is now the world’s most used mobile operating system, Samsung Electronics is the largest smartphone vendor. This will hardly change for a long time.
“Those wars are over,” said Tomi Ahonen, a renowned mobile market analyst and a former executive of Nokia Corp. “Samsung won the hardware war (and is now in the same position as Nokia was in 2008-2010, where it sees shrinking profits while commanding huge marketshare lead globally and advantages of scale). Android won the OS war. The Bloodbath is done.”
With the recent reorganization announced by Satya Nadella, the chief exec of Microsoft, it is also pretty clear that Microsoft does not want to evolve Nokia’s smartphone and feature phone businesses, it will just purge one of them and then completely redesign the other. In general, it means that Microsoft’s integrated hardware-software strategy has been dropped. If Microsoft could not evolve the Windows Phone/Windows 8/Windows RT eco-system with multiple partners, it is clear that it will not be able to be considerably more successful alone.
While Microsoft will consolidate its Windows platform going forward and the upcoming Windows 9 will power everything from smartphones to high-end workstations, this will arguably help it radically gain mobile market share and become a rival for Google Android or even Apple iOS.
Perhaps, what Microsoft should concentrate on is cloud software that works on every platform. Microsoft’s Office creativity suite is extremely popular, so is Skype, Outlook, MSN and many other offerings from the software giant. All of them could be the killer apps for a future cloud software platform.
At the end, Satya Nadella is a cloud guy…
* Given that Microsoft’s Q4 FY2014 includes Nokia Lumia sales results for the period beginning on the 25th of April, 2014, sales of the Lumia devices were higher than 5.8 million in Q2 of calendar 2014 (which ended on June 30, 2014). However, if Nokia sold the same amount of Lumias for 24 days in April as Microsoft did during the rest of the quarter (87.87 thousand units a day), then the total sales of Lumia handsets during the quarter were about 7.9 million units.
** Estimate by TomiAhonen Consulting.
*** Microsoft hasn’t ever officially reported specific quarterly Surface revenue in the FY2013. Microsoft did reveal in Q3 FY2014 that she Surface sales were $494 million and that was 50% higher compared to the same period a year before, which means that in Q3 FY2013 Surface revenue was approximately $329 million. The software giant also said that the FY2013 Surface revenue were $853 million. Surface sales numbers for Q2 FY2013 and Q4 FY2013 are estimates.
Tags: Microsoft, Nokia, Lumia, Windows Phone, Windows RT, Windows Phone 8, Windows Phone 8.1, Windows RT 8.1, Google, Android, Apple, iOS, Surface, Surface RT