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February 5, 2014

Microsoft ‘could drop devices’

New CEO Satya Nadella will focus on software and ditch hardware, analyst contends.

By Joe Curtis

Microsoft’s new CEO may ditch devices to focus on software despite his company’s $7.2bn deal for Nokia, it is claimed.

Satya Nadella officially took over from Steve Ballmer as boss this week, with some labelling the firm’s former Cloud and Enterprise VP a safe pick, and others suggesting he will prove a breath of fresh air.

But while Ballmer’s exit is thought to have been hastened by his failure to act faster in the mobile and tablets space, early comments from Microsoft’s third chief executive suggest the tech giant could leave them almost completely, according to analyst group Creative Intellect UK.

Principle practitioner analyst Clive Howard told CBR that Nadella’s stated desire to "zero in on what Microsoft can uniquely contribute" could see hardware sacrificed for cloud services.

"Microsoft recently rebranded as ‘devices and services’, but while services are in good hands [Nadella] hasn’t talked much about devices," said Howard.

The company finalised a deal for Nokia’s handset business last November, but Nokia’s marketshare has been ever-shrinking in the face of smartphone giants Apple and Google.

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And Microsoft’s own tablet strategy forced it into a $900m writedown last July after poor sales over its Surface tablet.

But while it claimed tablet sales doubled to $893m in its latest quarter, up from $400m the previous quarter, it still suffered a $40m loss as the firm struggles to make headway with those same rivals, Apple and Google.

"[Hardware] is perhaps where the question mark is," said Howard. "It wouldn’t be the first time Microsoft or anyone has spent that kind of money [and changed its mind].

"Sometimes it’s better to look at where the future’s going and say ‘it’s better not to have this’. Nokia comes with a lot of issues."

IDC analysts said in a note: "Devices, in particular, remain a significant challenge for Microsoft", adding that producing their own could result in fewer original equipment manufacturers willing to partner with them.

Instead, Howard suggested, Microsoft should begin to offer more support for third-party integration with its services.

"Until recently the Windows clan was very powerful," he said. "Nadella has to stand up and fight them off. He could push ahead with things they’ve blocked, like support for iOS and Android within Office."

IDC agreed, stating: "The new CEO has to consider how to move more aggressively to push Office to non-Windows platforms."

It added that in the cloud space, Nadella must prove he can compete with other large providers like Amazon, claiming that "investors remain highly concerned".

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