Microsoft (NASDAQ:MSFT) needs to revise its phone strategy. With less than 3% global smartphone share, the partnership with Qualcomm (NASDAQ:QCOM) is not working out. It is time for Microsoft to build premium Windows phones with Intel (NASDAQ:INTC) processors. A flagship $600 Surface phone with an Intel Atom x5 or Core M processor is highly desirable.
An Intel-flavored handset might improve the stale state of Windows phones. Allowing third-party phone vendors to use any processor may also increase industry support for WM10 devices. Aside from fringe player Acer and Hewlett-Packard (NYSE:HPQ), there are no other major firms that will support high-end Windows 10 phones.
Third-party manufacturers might favor Windows 10 phones if the Continuum for Phones concept is fully implemented. Continuum's ambitious proposal is that high-end W10M phones could be used as portable computers. This is a killer idea that certainly appeals to enterprise users.
Unfortunately, all Windows 10 Mobile phones are still exclusively equipped with ARM-based processors from Qualcomm. They are limited to running watered-down versions of mobile-centric apps (like Office 365) when connected to external displays. Even the Lumia 950 XL and Hewlett-Packard's Elite x3 are incompatible with legacy desktop software like AutoCAD or Photoshop.
A Qualcomm-powered WM10 phone is not yet a replacement for the office laptop. Only an x86 processor can turn Windows 10 phones into real pocket computers. Workplace (and on-the-go) productivity requires people to often use legacy Windows productivity software.
Due to the many differences between x86 CICS vs. RISC processor architectures, ARM-based processors are (and will never be) fully compatible with legacy Win32/.NET programs.
Project Centennial Is Doubtful
I do not believe the hype over Microsoft's "Project Centennial" tool. This will supposedly convert millions of Win32 and .NET programs to the Universal Windows Platform. However, Microsoft's Desktop App Converter tool may work only on simple programs. I doubt if it could be used to fully transform complex productivity apps like AutoCAD.
Microsoft itself has failed to fully convert the desktop version of its Office 2013/2016 Suite to WM10.
But just in case it works, a Project Centennial-converted Win32 desktop program will certainly work better on x86 phones than on ARM-based ones. After all, the original codes were initially written to run on x86 architecture.
Using software-based conversion is not a smart way to grow apps count of WM10. Full 1:1 software conversion of software from x86 to ARM is impossible to implement. On the other hand, the Intel-powered Windows phone instantly gets access to millions of legacy Windows software. Microsoft should bring the full Windows 10 productivity on 5-inch, 6-inch phones.
I prefer a single Windows 10 operating system to cover phones, tablets, laptops, and desktop PCs. The Windows 10 Mobile OS is just an unnecessary concession to ARM-based processors.
If my proposal to get rid of Windows 10 Mobile 10 OS is too aggressive, the alternative is to build Intel-powered, dual-OS Windows phones. Intel demonstrated a dual-OS Android/Linux phone during MWC 2016 event. Intel used an entry-level Atom x3 SoC to do this. This is also feasible for a dual-booting WM10/Windows 10 phone.
To save battery, people can use it as a regular WM10 phone (with limited productivity functions). But once docked to an external monitor, it boots up to the full version of Windows 10.
A newer Atom x3 or Atom x5 should be powerful enough to realize this idea.
Staying exclusive with Qualcomm Snapdragons limits the potential of Windows phones. Microsoft and Intel must collaborate on smartphones. This could help them reduce the duopoly of Android and iOS.
The rumor of Microsoft postponing its Surface phone is probably because Intel needs more time. Once chipzilla comes up with a satisfactory SoC, the business-class Surface phone will probably feature an x86, not ARM-based processor. The best-selling Surface 2-in-1 tablet/laptop products are all Intel-powered.
An Intel-powered phone that runs full Windows 10 is an ideal upgrade for people/companies who still use 7 or 8-year old personal computers.
Lastly, Microsoft still needs to grow its phone hardware business. Increasing the number of Windows phone users is a major requirement for its freemium strategy. Even if Microsoft offers all of its apps to Android and iOS users, Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL) will never allow access to personal data of their customers.
Microsoft cannot build a meaningful mobile advertising business if they can't collect the data of Android/iOS users. Furthermore, revenue made by Microsoft apps earned through the Google Play Store and iTunes incurs 30% storefront fees.
It is, therefore, better for Microsoft to grow its Windows app store.
Disclosure: I am/we are long MSFT, INTC.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.