Nokia's X phone line: What will Microsoft do with it?

Views differ on whether Microsoft will hold on to Nokia's new X phones once its deal to buy the phone maker closes

BARCELONA -- Will Microsoft hold on to Nokia's three new X phones on Android once the deal to buy Nokia is final in the coming weeks?

Computerworld asked three analysts at Mobile World Congress whether Microsoft will keep Nokia's X phones and got three decidedly different answers: One said yes, one said no, and a third said both yes and no with conditions. Microsoft is expected to close on the purchase of Nokia's Devices and Services business by the end of the first quarter.

The Nokia XL has a 5-inch screen and Nokia's new user interface on top of Android software.

In a blog post Monday, Microsoft said it was pleased the X phones include Microsoft services, such as Skype, OneDrive and Outlook.com, and said the company would remain committed to Windows Phone as its primary smartphone strategy.

The statement seemed to both support X phones while still giving preference to Windows phones and left some Microsoft observers still uncertain about the future of X devices. Still, the statement said things might change quickly: "It is a fascinating time in the industry today. The rate of improvements in devices, the breadth of services offered, the way consumers and businesses are using devices of all shapes and sizes to do more -- it is a reminder to all of us that what is considered status quo in Barcelona this year has the potential to look very different in the rear view mirror a year from now," wrote Frank X. Shaw, Microsoft's corporate vice president of communications.

Nokia said Microsoft backs the X phone strategy.

"I think Microsoft will keep the X family in its lineup once it acquires Nokia, at least for some period of time," said Jack Gold, an analyst at J. Gold Associates. "Of course, it will partially depend on how successful the X phones are. They are primarily targeted at emerging markets, which have a different dynamic and one that Microsoft must tap into. Customers in those markets are very price sensitive, and less likely to care if full Android services are offered."

Nokia, the largest vendor of Windows Phone devices under the Lumia brand, announced the X, X+ and XL devices, based on the Android Open Source Project, which gives Nokia customers access to Android apps, but not through the Google Play store. Nokia is still offering services from Microsoft and Nokia on the low-cost devices such as Skype, OneDrive and Outlook.com.

Gold said the fact that the X phones don't come with Google services is a "strategy that Nokia and soon Microsoft can exploit to keep users directed to their own service offerings, while also offering customers an upgrade path if they choose later to go to a higher-price Lumia." By coupling a lower cost smartphone with services offered in the Lumia line, Nokia keeps the X phones "in the Nokia family, so to speak."

Long term, "Microsoft will not keep the Nokia X phone line," said Patrick Moorhead, an analyst at Moor Insight & Strategy. "The X line runs counter to Microsoft's goal of 'Windows Everywhere' and sends a mixed message to developers."

Carolina Milanesi, an analyst at Kantar WorldPanel, sees the future for the X line both ways, depending on conditions. Whether Microsoft says yea or nay to the X phones, Milanesi said she hoped that Microsoft keeps them.

"Yes, Microsoft will keep them if they think about the ecosystem play for services like Skype and capturing users for that play rather than leaving it all to Google," Milanesi said. "This speaks to the kind of things that Satya Nadella has been talking about since he became CEO. That's mobile cloud first, services and a wider reach."

On the other hand, she added: "No, Microsoft won't keep the X phones if they think that it would hurt Windows and if they continue to see software and licensing as their main play and source of revenue."

"Yes implies we are dealing with a new Microsoft that thinks more strategically at the bigger picture," Milanesi added. "The X family is not just about price points, it is also about access to [many Android] apps ... Eventually the X offering might need rationalizing, but I would argue you can differentiate geographically and by user segments before you run into issues" and have to kill the line.

In other words, Microsoft could sell the X phones for a long while in many Asian countries to a younger crowd that wants affordable phones.

This article, Nokia's X phone line: What will Microsoft do with it , was originally published at Computerworld.com.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His email address is mhamblen@computerworld.com.

See more by Matt Hamblen on Computerworld.com.

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