Partners Question Future Of Windows Phone After Microsoft Offloads Nokia Feature-Phone Business

Partners are scratching their heads about the next steps for Windows Phone after Microsoft said Wednesday that it is offloading its feature-phone unit for about $350 million, undoing a portion of its 2014 acquisition of Nokia’s phone business.

Microsoft will be selling its phone business to FIH Mobile, which is a subsidiary of Foxconn, as well as HMD Global, for $350 million, according to a statement.

"Microsoft has re-strategized, and this is essentially a sign of defeat that they couldn't get the traction they needed for their feature-phone unit," said David Felton, founder of Norwalk, Conn.-based Microsoft partner Canaan Technology.

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Redmond, Wash.-based Microsoft said it will continue to develop Windows 10 Mobile and support Lumia phones, including the Lumia 650, Lumia 950 and Lumia 950 XL, as well as phones from OEM partners like Acer and HP.

Meanwhile, Nokia said in a separate statement Wednesday that it has signed a strategic brand and IP licensing agreement with HMD -- and HMD's new Nokia brand smartphone and tablet portfolio will be based on Android, as opposed to Windows.

Microsoft has struggled for a while with Windows Phone in a competitive smartphone market: According to a report released by market research firm IDC in March, Windows Phone shipments dropped 18 percent in 2015 -- and the OS will see a 9.4 percent decrease in shipment levels over the next five years.

"I think [Microsoft's] key is keeping the OS to itself and not worrying about the hardware side of it," said Michael Goldstein, president and CEO of LAN Infotech, a Fort Lauderdale, Fla.-based partner. "It's such a competitive space, … at some point you have really only two competitors, Apple and Samsung."

Joe Balsarotti, president of Software To Go, a St. Peters, Mo.-based Microsoft partner, said he's not sure what the future of Microsoft's phone unit is.

"I don't think [Windows Phone] will ever be more than a niche product," he said. "I do think Microsoft has faced an identity crisis for over a decade as they can't even articulate what it is that they want to achieve. Are they a software publisher, consumer electronics manufacturer, cloud company, phone manufacturer, etc.? At least undoing this mistake from previous management might help them focus a bit better."

Microsoft reportedly may be focusing on a Surface Phone launch next year, and if that's the case, partners said, they are curious about how that device could fit into the Surface sales ecosystem.

"Any future impact on this sale depends on whether Microsoft opens their Surface products to more partners. … They could make a comeback based on their Surface hardware,’ said Canaan Technology's Felton.

Microsoft said about 4,500 workers will leave the company because of the arrangement, and the deal is due to be completed before the end of the year.