Microsoft's Smartphone Ambitions Are Too Lofty

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Earlier this week, AdDuplex released estimates on how Microsoft  Windows Phone is faring. Specifically, the figures estimate the different models that comprise Windows Phone. Nokia  is unsurprisingly the dominant vendor for Microsoft's platform, but what's notable is the rising popularity of low-end models such as the Lumia 520 and Lumia 620.

Source: AdDuplex (August 2013).

After closing the Nokia deal, Microsoft is hoping to generate more than $40 in gross profit per smartphone, up from less than $10 currently. However, Nokia's overall handset business sells phones at an average selling price of just $60 with an adjusted gross margin of 24%, which translates into just $14 per unit. That's after paying out Microsoft's Windows Phone license fee, but it goes to show how difficult it may be for Microsoft to reach its target of $40 in gross profit per unit. The company will be relying heavily on cost-saving synergies to do the trick.

In contrast, Apple  remains content to stay in the high end of the market with its new iPhone 5c. The Mac maker didn't alter its pricing strategy, which isn't surprising since that same pricing strategy is what allows Apple to grab the overwhelming majority of operating profits within the smartphone industry. While some Apple investors have expressed disappointment with the company's unit market share recently, they should remain quite pleased with its profit share.

Investors may have shrugged off headlines earlier this month that Ford  CEO Alan Mulally was in the running to become the next CEO of Microsoft  following Steve Ballmer's retirement. However, this storyline has now gained steam and AllThingsD is reporting that Mulally is now one of the top candidates. That could be bad news for Nokia's Stephen Elop, who will be returning to Microsoft and has been widely considered another top candidate.

Mulally has been widely credited with Ford's remarkable turnaround, which included getting rid of unnecessary brands, streamlining operations, paying down debt, and unifying the company's internal culture. Microsoft has long been criticized for its internal culture and structure, which promote internal competition instead of collaboration. That bureaucracy has been named as one of Microsoft's biggest weaknesses, which is also where Mulally could do wonders.

In today's episode of Tech Teardown, Erin Kennedy discusses Microsoft's latest news with Evan Niu, CFA, and Jamal Carnette.

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Erin Kennedy, Evan Niu, CFA, and Jamal Carnette all own shares of Apple. The Motley Fool recommends Apple and Ford and owns shares of Apple, Ford, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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