Microsoft Corporation (MSFT) Just Bought Its Next Multi-Billion Dollar Writedown

Windows Phone grows among feature-phone users
Of course, looking purely at Windows Phone’s growth, one might be inclined to believe it has a shot. Recent growth has been great — Windows Phone is up 78% on a year-over-year basis — but it’s worth considering where that growth is coming from.

Mostly, it’s coming from owners of feature phones. According to Kantar, most Windows Phone buyers are first-time smartphone owners — 42% to be exact. Intuitively, this makes sense — if at this point, a user hasn’t made the jump to a smartphone, he or she probably isn’t too technically inclined, and therefore wouldn’t see the value in a robust app ecosystem.

Moreover, the markets where Windows Phone is showing promise — the U.K., Mexico, France and Germany — aren’t the most important. Windows Phone remains a distant third in the U.S., and is almost non-existent in key emerging markets.

In China, Windows Phone accounts for just 2.2% of the market. Android, meanwhile, accounts for 70% of sales, and is now installed on more than half of all existing smartphones in the country. It’s largely the same story in India, where vendors like Samsung and Micromax dominate with their Android-based smartphones. IDC put Nokia Corporation (ADR) (NYSE:NOK)’s market share at just 5% in the second quarter.

Microsoft morphing into Apple-light
By buying Nokia’s handset business, Microsoft Corporation (NASDAQ:MSFT) is more or less becoming “Apple-light” — adopting a strategy of building integrated devices, creating both the software and the hardware. While this strategy has worked well for Apple, there’s no reason to believe that it will work out for Microsoft.

Indeed, the economics of the operating system business suggest that Microsoft’s modest 15% market-share target is too much. Android and iOS already receive the bulk of developer support, and as long as that’s true, Windows Phone will continue to offer an inferior experience.

Nokia shareholders should cheer the deal, but Microsoft’s efforts amount to throwing good money after bad. The mobile operating systems business is a two-horse race, and that isn’t going to change anytime soon.

The article Microsoft Just Bought Its Next Multi-Billion Dollar Writedown originally appeared on Fool.com and is written by Sam Mattera.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. 

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