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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

Discussion

Comments currently: 12
Discussion started: 07/31/14 01:55:48 AM
Latest comment: 08/24/14 02:57:27 AM
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[1-10]

1. 
"Lumia Sales Stagnating"
I hardly think that is true.
Symbian is dead, Windows has taken over that role and sales haven't plateaued, they are steadily rising.
Unless Apple gives us something amazing, which iOS 6 isn't, or Android addresses security issues, then that leaves Windows as a secure and stable platform to use.
There is nothing wrong with the design of the phones, there is one to suit everyone in a multitude of screen sizes too.
My conclusion is that smart phone users want a device they can be seen with, use to access their social media and, occasionally work from, unless Blackberry pull their finger out and release a new design soon, Windows is the smart choice.
0 1 [Posted by: caring1  | Date: 07/31/14 01:55:48 AM]
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then that leaves Windows as a secure and stable platform to use.

I assume you have forgotten what the last Tuesday of the month is called in every IT department on the planet that supports Windows based machines?

Oh yeah... That pesky (and dreaded) "Critical Patch Tuesday"...

And as for stability, my Win 8.1 Pro box crashes with some service or another every 2-3 days. And Windows now comes with this really cool "Problem Resolution Finder" that cant find any resolutions. LOL

So much for Windows stability...
0 0 [Posted by: The Old Fart  | Date: 08/17/14 03:54:08 AM]
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2. 
Once a company or its products looses its "COOL" factor there is little if anything which it can do to regain its "COOL" factor. If a monopoly losses its Grip on the market and has lost its "COOL" factor and is perceived as yesterdays child it will fall like all other monopolies have in the past.
0 0 [Posted by: tedstoy  | Date: 07/31/14 07:22:21 AM]
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3. 
Microsoft is like some Chinese company they are trying to get market shares in area witch is already well established by Apple and Google.

They did it with DOS and Windows and where backed up by government so they succeeded, this time they are in open market and they are not doing so well.

They have so many fails by now Windows millenium, Vista, Zune and now Nokia, everybody nows how they cheated to get nokia , nobody likes them, expecially in Europe.

They are trying to mimic apple for long time (Zune) and they are failing in process.

Microsoft dosent deserve the place they have anyway.
2 2 [Posted by: kingpin  | Date: 07/31/14 09:12:52 AM]
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4. 
Windows Phone 8.1 is the first good mobile OS from Microsoft since Windows Mobile days. It may have a big effect on the market.

Windows 8 is not there yet. Wait for Windows 9 for a top notch deaktop/tablet operating system. If they get it right they can take a lot of market share.
2 1 [Posted by: CSMR  | Date: 07/31/14 11:03:42 AM]
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Update 1 makes WP8.1 even better, especially with all the corporate features added. Our company is probably going to switch over to WP by end of the year. We are in the middle of evaluating WP, Android and iOS and WP is so far on top when it comes to security and stability.
0 0 [Posted by: Memristor  | Date: 08/11/14 08:33:58 AM]
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5. 
The author doesn't understand that the Windows brand in the consumer space is avoided like the plague.
1 1 [Posted by: beck2448  | Date: 07/31/14 01:58:08 PM]
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6. 
I wonder what Microsofts strategy realy is, becouse i dont see one.

Their strategy so far was "WE ARE MICROSOFT, THIS IS NOKIA, BUY US, BUY US"

If in modern mobile world is all in apps and ios and android hawe millions of apps i dont see Microsoft there, even Blackberry is OK cuzz now they support 90& of android apps. XD XD
2 0 [Posted by: kingpin  | Date: 08/01/14 10:13:37 AM]
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7. 
Barmy Balmers legacy !
0 0 [Posted by: alpha0ne  | Date: 08/06/14 01:33:09 AM]
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8. 
Personally, I have a great aversion to how Microsoft elects to do business. While I understand and can appreciate the work that is being done under the hood of their products (e.g. Win 8 vs 7 performance improvements), I feel that higher tiers of management are completely detached from what large groups of their end customers want.

My professional experience:
As an IT professional working in a big corporation, the way Win 8 was treated here is very reminiscent of Win Vista. Quick roll out, quick withdrawal followed by a move back to Win 7 across all machines. While the design of the UI makes sense for a mobile-touch based platform, it is completely useless in a professional environment.

My personal experience:
1.) I've been recently asked by two acquaintances who are not PC enthusiasts to change their pre-installed OS on their new notebooks and you guessed it, both of them had had the brand new OS from Microsoft. Both now happily transitioned to Ubuntu.

2.) I use Win 7 for my home PC and that's only because of gaming. If Microsoft doesn't change its focus back from mobile platforms, then I'll migrate to SteamOS as soon as support for Win 7 stops.

3.) I play my reasonable amount on Xbox 360 and I don't have a huge problem with the UI, which is kind of reminiscent of the Modern UI. The input paradigm and normal use cases work with the UI design perfectly fine.

4.) I have never owned a portable device with Modern UI. During my very brief experience with a Windows 8 phone, the UI wasn't a problem for. I could navigate the device without fail. I would certainly not disqualify a smartphone based on Windows Phone alone.
1 0 [Posted by: solearis  | Date: 08/07/14 02:54:44 PM]
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9. 
Microsoft just cant get enough people to like that big ugly chunky blocky screen crap that was to be called Metro. Has not sold enough laptops to make them s profit, and they cant get to 3% market share in phones sales.

Damned near nobody is going to write apps for a phone that cant get a whole lot more than 3% of the market, so Microsoft is in a world of hurt on phones.

But never count Microsoft out. In their history, there have been lots of products that seriously sucked in the first 3 or 4 versions of it, and which Microsoft has since made billions of dollars off of. Windows, Word, Excel, Power Point, and even their networking software. So never say never with Microsoft.
0 0 [Posted by: The Old Fart  | Date: 08/17/14 04:04:16 AM]
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10. 
Walmart has the BEST price on the Windows Surface! Get it here now! http://bit.ly/1psttR3
0 0 [Posted by: Nicky Davies  | Date: 08/24/14 02:57:27 AM]
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