Phone Hardware revenue decreased $748 million or 38%. Gross margin decreased $158 million, due to lower revenue, offset in part by a $590 million or 31% decrease in cost of revenue. Phone Hardware has been included in our consolidated financial results starting on April 25, 2014, the date we acquired NDS.
- Lumia phones revenue declined, driven by a mix shift to lower price point devices. We sold 8.4 million Lumia phones in the fourth quarter compared to 5.8 million in the prior year.
- Non-Lumia phones revenue declined, driven primarily by lower volumes. We sold 19.4 million non-Lumia feature phones in the fourth quarter compared to 30.3 million in the prior year.
- Phone Hardware revenue included an unfavorable foreign currency impact of approximately 4%.
While Q1 has been a seasonally weak quarter Q2 2015 was expect to yield better results in terms of volume. But while volume has down sequentially, margins have gone down to worrying levels thanks to low-end focus and low-end devices making majority of the sales.
When Microsoft acquired Nokia D&S business one of the key argument given by the deal supporters was that Microsoft with its deep pockets will be able to sell loads of low-end very low-margin Lumias thus creating a big user-base. Nokia management had started to worry about margins and then Microsoft decided to buy the Nokia business for keeping the platform growing without worrying much about margins. But seems no business can last long if it doesn’t take care of “profit creation” smartly. Microsoft has now written-off the Nokia D&S acquisition, as it now doesn’t see the value in “profitless volume push”.