After a dismal showing for the Windows Phone, Microsoft is making a big push in emerging markets, hoping that low-priced phones will appeal to first-time buyers in those countries.

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Seven months after shelling out $7.5 billion for Nokia’s mobile- phone unit, Microsoft put its stamp on the business, releasing the first phone to bear the Microsoft name in years.

Where did Microsoft, the Redmond giant that makes most of its money in the U.S. and Europe, start its post-Nokia era?

At a media event in New Delhi, India.

In acquiring Nokia last year, former Microsoft Chief Executive Steve Ballmer arranged the marriage of two companies that badly lost in the race to sell the first billion smartphones.

Windows Phone, the Microsoft mobile operating system used almost exclusively in Nokia-produced phones, ran just 2.7 percent of the smartphones shipped worldwide in 2014, according to data tracker IDC. In developed economies, consumers have largely committed to Apple- or Google-powered devices, analysts say.

Microsoft is trying to return to relevance in part by outflanking those rivals in the countries where smartphones aren’t ubiquitous.

“Any growth left in the market will come from emerging markets that are in the midst of the smartphone transition,” said Peter Richardson, an analyst with Counterpoint Research and a former head of market intelligence at Nokia. In those markets, “there’s still some possibility of Windows Phone finding traction.”


The Microsoft Lumia 535, released in November at the New Delhi event, looked like the typical shiny, brick-shaped smartphone, boasting a touch screen and two cameras. Under the surface, though, was cheaper hardware, and a price tag designed to appeal to first-time smartphone users. Deals with Indian retailers lured potential buyers with free data, video-streaming subscriptions and cash toward e-books.

It was the first in a series of low- and midrange phones Microsoft debuted during the past few months, including models unveiled Monday at Mobile World Congress, the major industry conference in Barcelona, Spain.

Priced at $29 to $240, the new slate is targeting consumers who don’t have the means to shell out $500 for a pocket-size computer.

Nokia’s markets

Nokia historically had strengths that pointed to Microsoft’s emphasis on emerging markets. The Finnish company was a dominant global player in basic mobile phones, building a manufacturing and distribution network from Brazil to India and earning a reputation for quality.

And while Windows Phone suffers in the U.S. and Europe from an app store that doesn’t feature as many programs as those overseen by Google and Apple, in emerging markets there’s a more level playing field. First-time smartphone buyers tend to be less concerned about missing apps for their bank or a video game, analysts say.

“There are still a billion consumers that don’t have access to the Internet,” said Jo Harlow, a Microsoft vice president who oversees the company’s smartphone hardware business. “There are still many consumers that don’t even have mobile phones yet. That gives us an opportunity to reach those consumers with their first devices.”

That opportunity means a chance to introduce Microsoft software to customers in countries where the company has had a minor presence.

If Microsoft can sell a smartphone or Internet-enabled basic mobile phone, Harlow’s hope is that some buyers get hooked on programs like Skype, Word or online data storage and, perhaps, pay for those services down the line.

Microsoft’s strategy is also born of necessity. The company, first as partners with Nokia and later as corporate parent of the handset division, has released during the past three years a broad range of smartphones, from basic devices to showpieces with high-end hardware.

“They soon found that they only achieved any significant success at the low end,” said Nick Spencer, an analyst with technology researcher ABI. “You could call this a strategy, but I’m not sure Microsoft had a choice.”

Deep cuts

The company is waging its comeback battle with a leaner crew.

Microsoft has nearly halved the workforce acquired with Nokia, cutting 12,500 jobs and closing plants and engineering facilities in locations from Hungary to China. Executives said the cuts were needed to shift the company’s footprint toward the phones of the future and, ultimately, push the money-losing business to profitability.

The cuts took a toll, said Ryan Reith, a mobile analyst with IDC. But the core of a talented leadership group remains, he said.

“These are people who sold hundreds of millions of features phones for years in Africa, the Middle East,” Reith said. “These guys are familiar with that. If you can do enough volume, you can make money.”

In many of those markets, increasingly affluent consumers are upgrading to smartphones.

India and China, widely targeted consumer markets that together are home to more than a third of the world’s population, represent the promise and the challenge of Microsoft’s approach.



China is the world’s largest smartphone buyer, ahead of the U.S.

In India, now the third-largest market, consumers buy more devices each year than the U.K., France and Spain combined. Some analysts project the country will overtake the U.S. as economic growth accelerates.

India was also one of Nokia’s stronger markets, and home to what was for years the company’s largest manufacturing plant.

While it’s still the early days, Harlow said, the Lumia 535 “is doing extremely well” in its first markets.

Microsoft by late February had shipped 750,000 copies of the phone to India, according to Indian customs tracker Zauba.

But all of this may not be enough for Microsoft to hold its ground in an increasingly crowded market.

The Lumia 535 is “nowhere close to the leading smartphones in India,” said Jayanth Kolla, a partner with Bangalore, India, mobile-consulting firm Convergence Catalyst.

A version of the Lumia 535 holds the No. 13 ranking on Indian online retailer Flipkart’s list of best-selling smartphones. That trails high-end phones made by global smartphone titan Samsung, midrange and bargain phones from Taiwan’s Asus, and devices from a set of Chinese manufacturers.

The days when Microsoft, Samsung and other global phone giants could trust their hardware would easily best the local competition are over, analysts say.

“Chinese and Indian [manufacturers] are really good at developing devices at lower costs,” said Chetan Sharma, an Issaquah-based independent mobile consultant. That’s keeping a lid on prices of all but the highest quality smartphones. “The challenge there is that very few people are actually making money,” Sharma said.

In China, that country’s manufacturers now account for six of the top 10 global smartphone sellers, according to data tracker Canalys.

Meanwhile, Microsoft’s sales in China during the last three months of 2014 were down 21 percent from a year earlier, according to IDC — the only market among the company’s top 10 where sales declined.

This month, Microsoft plans to shut the two Chinese factories it acquired in the Nokia deal and concentrate its phone manufacturing in Vietnam.

Hedging bets

But Microsoft, which its executives now acknowledge is playing the insurgent role in the smartphone universe, is hedging its bets.

The company under CEO Satya Nadella dropped its longstanding preference for pushing users toward Windows at all costs, releasing free mobile versions of Office software for Google and Apple smartphones and buying popular app makers for those platforms.

Microsoft is also trying to replicate the success of Google’s free-to-use Android in attracting Asian manufacturers by dropping the licensing fee on copies of Windows Phone.

Ultimately, its first year back in the phone hardware business may wind up as a quiet prequel to a software launch.

Harlow said Microsoft isn’t ceding the phone-manufacturing field and plans to continue to release smartphones at all price ranges. Company executives at the Mobile World Congress in Barcelona this week said Microsoft is waiting for the release of the Windows 10 operating system later this year to showcase its high-powered hardware.

Redmond hopes Windows 10, with its promises of smoother developer adaptation of desktop programs to smartphones and tablets, opens a backdoor to greater share of the smartphone market. In Microsoft’s vision, vibrant developer and consumer interest will spur other hardware builders to make phones for the operating system.

“They’ve thrown a lot out there that just hasn’t worked over the last couple of years,” IDC’s Reith said. “I think they’re going to have to hedge their bets with Windows 10 and ask ‘Why are we really out there?’ ”