The Takeaway: For Windows phones, it’s all over but the shouting

While Microsoft is still making smartphones for its Windows 10 Mobile OS, the company has more or less given up on the mobile course set by former CEO Steve Ballmer and will likely be forced to discard the strategy entirely.

The company’s only hope for success? The arrival of Windows 10.

That’s the consensus of analysts in the wake of Microsoft’s decision this week to write off $7.6 billion of its investment in Nokia. Ballmer engineered the Nokia deal before stepping down; his successor as CEO, Satya Nadella, was opposed to the initial purchase and has moved to dismantle it since taking over the company in 2014.

Nadella this week asserted that the company isn’t walking away from Windows Phone. “I am committed to our first-party devices including phones,” he said. But even with the billions Microsoft has poured into mobile, Windows powered just 2.7% of the handsets shipped worldwide last year, according to IDC.

Asked about the ramifications of this week’s move, analysts were pessimistic:

• Patrick Moorhead, principal analyst at Moor Insights & Strategy, thinks Microsoft will continue with phones for now in a bid to build out its hardware/software ecosystem. “Microsoft will have something very similar to where the Surface line is now,” he said. “The idea will be to create inspiring hardware that motivates their ecosystem. They’ll go after the ‘halo’ effect.”
• Jan Dawson, chief analyst with Jackdaw Research, said that Microsoft pretty much is the Windows Phone industry, and any pullback is tantamount to waving the white flag. “Microsoft owns 95% of the business, and I don’t see that changing,” he said, noting that other manufacturers have shown little interest in making Windows Phone devices. “Why would anyone get into [the Windows smartphone] business?”
• Jack Gold, principal analyst at J. Gold Associates, sees it the same way. “The issue for me was always, if Microsoft owns Nokia, why would others want to make Windows phones? You’re basically telling your OEMs, ‘Compete directly with us,'” Gold said.

Even if Nadella wants to kill off the phone business, he can’t do so right now. The company has already invested too much in keeping it alive.

“The timing just doesn’t seem right for abandoning either Microsoft’s first-party phone business or Windows Phone as a whole,” said Dawson on his research firm’s blog. He argued that company was playing for time, so Windows 10 could give it a last shot at success.

“They’re clearly banking on Window 10 for mobile,” he said. “[But] I continue to be very skeptical of Windows future on smartphones.”

“The challenges facing Microsoft, he said, are “insurmountable.”

With reports by Gregg Keizer at Computerworld.