Investors who follow smartphone trends may have already seen the new Q3 sales data from research firm Gartner. Not surprisingly, smartphones running an Android OS still rule the roost, and after another quarter of stellar sales, Apple maintained its position as the number two smartphone manufacturer in the world.
As for Microsoft's smartphone sales efforts, one look at any of the numerous headlines screaming some version of "Microsoft smartphone market share plummets!" says it all, right?
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Not quite. From the day CEO Satya Nadella shared his "mobile-first, cloud-first" mantra, some investors bemoaned Microsoft's smartphone ambitions. Nadella's internal memo to employees this past summer in which he said Microsoft had to "make some really tough choices in areas where things are not working" really got the anti-mobile talk flying. But the scuttlebutt surrounding Microsoft and its unmet mobile ambitions demonstrate a misunderstanding of Nadella's plans: it was never about beating Apple in the smartphone wars.
Survey saysIn the third quarter Apple moved an impressive 46 million iPhones, up from 38.2 million last year and good for a 13.1% share of the global market. As for Microsoft, its smartphone sales warranted a place within the "others" category, and little else. As measured by operating systems, the aforementioned Android and iOS occupy their usual spots at the top of the list with 84.7% and 13.1% respectively.
Windows phone is the OS of choice for nearly 5.9 million smartphone owners, equal to 1.7% of the world's operating system market. Thanks in part to Nadella's mobile strategy targeting emerging markets via its low-end mobile phones, Microsoft held the third spot worldwide after moving nearly 30.3 million phones in Q3. However, Microsoft's OS and mobile phone sales market share declined year-over-year, adding fuel to the bearish fire.
The grand planIt was telling when Nadella finally made Office 365, among other features, available for iOS and Android users. Why? Because it reinforced Nadella's mobile-first objective of getting Microsoft solutions into as many devices as possible, regardless of manufacturer. Last quarter's nearly 70% increase in Office 365 revenue, after accounting for currency headwinds, and 20% jump in users is a testament to Microsoft's mobile plans.
That same strategy of getting Windows into any and all devices was the driver behind the growth of Microsoft's Bing search engine last quarter too. Search revenue was up 29% last quarter, after accounting for currency, and finally became profitable.
It also warrants mentioning that Windows 10 had already been downloaded to 110 million devices as of fiscal 2016's Q1 announced Oct. 22, and you can bet that number has continued to climb. Naturally, many of those 110 million units running Windows 10 are of the PC variety, but not all -- which brings us to another piece of Nadella's mobile puzzle.
A recent report suggests that by year's end Microsoft and its tablet partners will have sold a whopping 22 million units running Windows -- an impressive figure given that Surface and Surface Pro devices are relatively new to market. And that number is expected to more than double by 2019 to 49 million tablets running Microsoft's OS, good for an 18% market share.
Rumor has it Microsoft is reportedly working to bring the full suite of desktop Windows apps to a new Surface Phone, which fits its mobile plans perfectly. Rather than rely solely on sales of the high-end Lumia line-up, which is yet another alternative to the bevy of existing smartphones, or low-margin mobile phones, how about "a phone that can replace your PC?"
Like Microsoft's Surface and Surface Pro devices, a phone with the power of a PC in today's mobile world could be an innovative game-changer. As with the decision to develop Office 365 for iOS and Android systems, a seemingly natural next step in the evolution of a PC-like smartphone would be to make Windows PC apps available to users running any OS, further extending Microsoft's mobile-first ambitions.
Yes, Microsoft's smartphone sales are declining, but that doesn't mean its mobile-first strategy is a bust. In fact, combined with its strong cloud sales, Microsoft's mobile-first efforts should move it up the list of growth and income stocks to consider.
The article More Proof Microsoft Corporation's Mobile Strategy Is Spot On originally appeared on Fool.com.
Tim Brugger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool recommends Gartner. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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