Nadella leaves no doubt about who is in charge in first six months as CEO

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“Our approach to first-party hardware going forward is clear: At times we’ll develop new categories like we did with Surface. And we will responsibly make the market for Windows Phone,” he said then. “However, we’re not in hardware for hardware’s sake, and the first-party device portfolio will be aligned to our strategic direction as a productivity and platform company.”

An early victim of that more skeptical vision of Microsoft’s mission as a hardware maker was a long-rumored smaller Surface tablet, reportedly called Mini, whose development was axed.

Industry analyst Jack Gold from J. Gold Associates interprets the layoffs as a sign that, unlike Ballmer, Nadella doesn’t want to remake Microsoft in the Apple model and compete against it directly.

“Nadella rightfully understands that it shouldn’t go there,” Gold said via email. “Nadella’s focus on productivity is the right approach to Microsoft’s future in my opinion, including the focus on how to make the OS better, and services in the cloud.”

In fact, Gold believes that in the next 18 months, Nadella will exit the phone business, as well as scale back or exit the Surface business.

Microsoft Surface Pro 3 Michael Homnick

Is the Surface tablet headed for the chopping block, too?

However, Nadella has said he is enthusiastic about the Surface Pro 3 computer, which Microsoft positions as a dual-use tablet and laptop, and about other Microsoft hardware products, like the Xbox gaming console and the large Perceptive Pixel displays.

En Pointe Technologies’ Hogan said, however, that partners need Nadella to clarify the strategy around the Nokia devices. “He needs to be more in-depth about that. It’s not clear where they’re going with it,” he said. “He’s saying ‘mobile first’ but that’s a bit unclear.”

For Hogan, the Lumia smartphones are excellent for work, but lag iPhones and Android devices for personal use, and these days people expect their smartphones to be useful for both scenarios.

He’s more positive on the Surface Pro 3, saying Microsoft really got it right with this third rev of the device, which En Pointe Technologies resells as well. “The product is robust and is starting to replace laptops,” Hogan said.

The IFRC’s Happ questions the wisdom of shutting down development on the Android phones Nokia had started to sell, saying the exclusive focus on the Windows Phone OS is short-sighted.

“The ‘run on anything, anywhere’ approach would have made more sense to me,” Happ said. “I have no problem with making Nokia run best with the Windows Phone OS, but I doubt that taking the Apple closed ecosystem of hardware/software is repeatable, especially when you have such low market share.”

Cleaning Windows

During these six months, Nadella has tackled Windows issues. He has said that it’s a priority for Microsoft to continue the work on a more homogeneous code base that simplifies application development for the platform.

Nadella also approved the unprecedented move of giving away Windows to hardware vendors making devices with screens of 9 inches and smaller, a move to improve the OS’ pitiful presence in tablets and smartphones against iOS and Android.

windows 8.1 on a laptop

Nadella wasn't responsible for bringing Windows 8 to market, but subsequent releases have been on his watch.

Nadella oversaw as well the launch of Windows Phone 8.1, a major update of the smartphone OS, which comes with the voice-controlled Cortana digital assistant, Microsoft’s response to Apple’s Siri and Google’s Now, and with other major enhancements.

He also ushered in an update to Windows 8.1 aimed at disgruntled desktop users who had complained that Windows 8 and the first Windows 8.1 rev were inconvenient to use with mice and keyboards.

However, much work remains to be done on both OSes. Microsoft is reportedly working on the next major version of Windows. And the future is uncertain for Windows RT, the version of the OS for devices with ARM chips.

“He has to right the ship when it comes to Windows 8,” Gold said. “While I don’t see it as a total disaster as some have said, I do think that unless the next version of Windows addresses all the usability and functionality concerns of users, which will help adoption and quell the bad press, that Microsoft is going to face increasingly stiff competition—from Apple to Android to ChromeOS—as users try to find a compute environment they feel more comfortable with.”

Nadella’s first semester also included the end of support for Windows XP in early April, which had been announced years ago but still caused much controversy, due to the immense installed base of the trusty but ancient desktop OS. Microsoft stood its ground, sticking with its plan to end XP support, despite pleas from many for an extension.


Under Nadella, Microsoft’s earnings reports so far have been viewed as solid, if not necessarily stellar. Nadella was appointed CEO about a month into the third quarter, which ended with revenue coming in at $20.40 billion, down from $20.49 billion a year earlier. Net income was $5.7 billion, down from $6.1 billion. However, Microsoft’s results matched the revenue consensus forecast of analysts polled by Thomson Reuters and exceeded their earnings-per-share estimate.

Meanwhile, revenue shot up 18 percent in the fourth quarter, although profit shrunk. Revenue for that quarter, ended June 30, was $23.4 billion, ahead of the consensus analyst estimate of $23 billion. The revenue figure included $2 billion from the Nokia Devices and Services business that Microsoft acquired. The Nokia business, however, dragged down profit with an $0.08-per-share loss. Total net income was $4.6 billion, down from $4.9 billion a year earlier, and below analysts’ consensus expectation.

On balance, shareholders seem to be giving Nadella a vote of confidence. Company shares, which were hovering around $37 right before his appointment, have been in the $43 range in recent days. Whether that optimism lasts will depend on the fruits of Nadella’s strategy.

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