“We make phones today, we have OEMs like HP making phones and others and we picked a very specific area to focus on which is management, security, and this one particular feature that we have called Continuum, which is a phone that can even be a desktop,” Nadella explained. “So when you say, ‘When will we make more phones,’ I’m sure we’ll make more phones. But they may not look like phones that are there today.”
Despite Microsoft’s best efforts to prop up its sagging Windows Phone business, it has not had much success. In 2014, the firm acquired Finnish company Nokia for $9.5 billion but was forced to lay off 18,000 employees when phone sales failed to turn around.
Things worsened from there. In 2015, phone development costs exceeded revenue by $4 billion during the first fiscal quarter — a loss of about 12 cents per phone. Microsoft subsequently wrote down $7.6 billion in costs and slashed 7,800 jobs.
It then tried a two-tier approach to the market: Budget and high-end devices. It launched affordable phones like the Lumia 215 ($29) alongside premium handsets like the Cityman, which boasted a QHD (2,560 x 1,440 pixels) screen, a 20-megapixel camera, and a triple-LED flash.
Despite the new strategy, Microsoft’s hardware still struggled to gain a foothold against competitors like Google, Samsung, and Apple. Its global share of the smartphone market hovered around two percent and analysts at IDC report that Microsoft sold a mere 4.5 million Nokia Lumia devices in the fourth quarter of 2015 — a 57 percent dip between 2011 and 2015.
In May 2016, Microsoft effectively washed its hands of Nokia’s hardware business, signing its manufacturing facilities, brand, and digital services to holding company HMD Global.
But rumors of a new phone persist. The so-called Surface Phone is said to come in three models — a consumer model, a business model, and an “enthusiast” model — and ship running Redstone 3, an upcoming version of Windows Phone with native support for Win32 apps like Google’s Chrome browser and Adobe Photoshop.
“We need more breakthrough work … with Surface we had a bunch of early misfires, but that notion of a tablet that could replace your laptop — that notion of saying, ‘Hey, Apple wants to sell you an iPad and they want to sell you a Mac,’ we think there’s one device that exploits the seam between those two devices — we need some sort of spiritual equivalent on the phone side that doesn’t just feel like a phone for people who love Windows,” Microsoft’s Chief Marketing Officer Chris Capossela said on This Week in Tech’s Windows Weekly podcast in December 2015.
“It has got to be a phone that’s sort of like, ‘Wow, that’s a shocker,” or, ‘That’s a real breakthrough,’ and has got to make me pause before I buy my 17th iPhone, and we need time to actually go through that.”
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