No new Lumia flagship? Smart move, Microsoft

Microsoft's decision to wait until Windows 10 arrives to deliver a high-end Lumia smartphone may have irked some of the company's loyal customers, but it was the smart move, according to analysts.

"It totally makes sense," said Bob O'Donnell, chief analyst at Technalysis Research. "Why do a flagship phone when everyone's waiting for Windows 10?"

At Mobile World Congress today, Stephen Elop, chief of Microsoft's Devices group, introduced a pair of lower-priced Lumia smartphones, the 640 and 640 XL. Elop also said that his business unit wouldn't launch a high-end phone until later this year.

"With Windows 10 ... we are also going to deliver a new family of devices, including devices at the flagship level, later this year," said Elop in a company blog following a news conference earlier today.

Most analysts expect Microsoft to release Windows 10 - and device makers, hardware with the new OS pre-installed - this fall, probably in October.

A pair of influential Microsoft commentators weren't thrilled.

"Unless Samsung, HTC, or other phone makers create a high-end Windows Phone ahead of the Windows 10 launch, it's a long wait for fans," wrote Tom Warren of The Verge. "That's a tough position for Microsoft to maintain, and one that will frustrate Lumia 920 and Lumia 1020 owners desperately waiting on the next great Lumia camera hardware."

Paul Thurrott, who now writes at Thurrott.com was blunter about the new Lumia 640 and 640 XL. "Microsoft just brought a couple of knives to a gun fight," he said today in a piece that used the phrase "Microsoft Treads Water" in its title. "We're in a holding pattern until Windows 10 ships, and it's not like Windows Phone can afford that ongoing delay."

Their arguments were bolstered by Microsoft's slip in smartphone share last year. According to IDC, Microsoft's smartphone operating system share for both the fourth quarter and all of 2014 were down from the periods prior. Windows Phone powered 2.7% of the smartphones shipped last year, IDC estimated, off from 2013's 3.3%.

True, agreed Ross Rubin, principal analyst at Reticle Research. But Microsoft had little to gain by introducing a top-end device that relies on an OS that will be supplanted within months, and in an environment where Apple and Samsung capture the bulk of the premium market in any case.

"Even if Windows 10 was here today, it would be doubtful whether it could pick up major market share," said Rubin, no matter the price of the smartphone.

Rubin also pointed out that, with little chance a higher-end Lumia would change Windows Phone's immediate fortunes, it was more important to consider a device in the narrower confines of competition within the Windows ecosystem. And since there isn't any rush by other handset ODMs (original device manufacturers) to push into the Windows premium space, Microsoft is doing the right thing by waiting until Windows 10.

Instead, said O'Donnell, Microsoft can use the hype around Windows 10's debut later this year to promote a flagship Lumia. "When Windows 10 is ready, then bingo, out comes [a flagship]. That's just smart."

Microsoft's strategy -- which has been predicated on handing out free OS licenses to ODMs and thus focusing on the low end -- is a "long-term play," added O'Donnell, making for another reason not to rush out a top-tier device.

That strategy may ultimately fail, but realistically it's what Microsoft has at hand. "Even long term they're going to have a hard time with the utter dominance of Android and iOS," O'Donnell continued. "If they get to 8% to 10%, which I think they can, that would be huge for them. But I don't know that that's getting them anywhere near the level of really competing [with Android and iOS]."

Nor are the Lumia 640 and 640 XL the placeholders some see them as, argued Rubin. "These 'step-up' smartphones are where Microsoft is seeing the most sales," he said, using a label for low-priced devices attractive to first-time smartphone buyers moving up from feature phones. "They're beefing up that step-up range, something the larger [5.7-in.] display [of the Lumia 640 XL] lends itself to."