Microsoft Windows Mobile Backed by $1 Billion, Says Analyst

Microsoft plans to spend $1 billion on its Windows Phone strategy this year, according to a financial analyst who covers the company.

The word on Microsoft's (NASDAQ: MSFT) investment strategy came from Bill Koefoed, general manager of the company's investor relations group, via a conversation he had recently with Brendan Barnicle, senior research analyst at Pacific Crest Securities.

"He [Koefoed] revealed they're planning on spending $1 billion on research and development in mobile just this year," Barnicle told InternetNews.com.

That's a lot of money -- roughly 10 percent of Microsoft's annual R&D budget -- and at the very least, it indicates the company is serious about catching up with mobile competitors such as Apple's iPhone, Google-backed Android and Symbian. However, it's not enough for Microsoft to go on a buying spree.

Given the size of the budget, Barnicle said he thinks that indicates Microsoft is unlikely to try to buy a handset maker such as Palm (NASDAQ: PALM) or Research In Motion (NASDAQ: RIMM) any time soon. Both have been floated as acquisition targets in the business press, and there have been rumors that Palm may be for sale. However, Barnicle said that Microsoft isn't likely to make the plunge.

"In our minds, [Koefoed] ruled out them buying somebody like Palm or RIM," he said, adding, "He didn't say it directly ... it's our conclusion."

However, there have been rumors for months that Microsoft might sell under its own brand a Windows Mobile or Windows Phone 7 Series handset, codenamed Pink. Microsoft already pursued such a strategy with its Zune media players, while Google (NASDAQ: GOOG) has made a similar move with its Nexus One Android smartphone.

However, it's unclear how much of Microsoft's billion-dollar spend might go toward designing and marketing a mobile device that it could sell under its own brand.

Mulling Microsoft Windows mobile device strategy

The lack of clarity isn't necessarily new for the company's efforts in mobile, with Microsoft having struggling of late to clarify its entire strategy. In October, handset OEMs began delivering phones that run on the company's Windows Mobile 6.5, the latest version of its 6.x phone software. Then, at Mobile World Conference 2010 in Barcelona last month, Microsoft debuted Windows Phone 7 Series, which is set for availability from OEMs in time for this year's holiday sales season -- and which may spell the end of the Windows Mobile 6.x lineup.

Despite the positive buzz that Windows Phone 7 Series generated with analysts, though, Microsoft is still at a poor fourth place in the smartphone operating systems market. According to Gartner's latest numbers, Microsoft's Windows Mobile 6.x had 8.7 percent market share at the end of 2009, down from 11.8 percent in 2008.

In comparison, Apple's iPhone operating system finished 2009 with 14.4 percent, up from 8.2 percent in 2008, while BlackBerry maker Research In Motion (NASDAQ: RIMM) ranked 19.9 percent, a gain from 16.6 in 2008. Nokia-backed Symbian, though it lost share, still reigns with 46.9 percent, down from 52.4 percent.

The company has to date said little about how Windows Mobile 6.x fits into its overall smartphone strategy. Although rumors are circulating that many, if not most, 6.x-based phones -- including ones that shipped in October and later -- will not be upgradeable to run the Windows Phone 7 Series operating system, Microsoft is staying mum.

At least some of Windows Mobile 6.5's future is known, however. In a briefing for financial analysts held at MWC 2010 in February, Andy Lees, senior vice president for Microsoft's Mobile Communications Business, said that it will become the operating system for less-expensive smartphones.

"We're now at a situation where you can use Windows Mobile 6 on some very, very cheap phones, sub-$200 transfer price phones," Lees said. "We're seeing in Latin America this big explosion of people getting their first smartphone and using Windows Mobile 6 to do that," he said, adding that 6.x and 7 phones are likely to "coexist" for 18 months to two years.

For its part, Microsoft had no direct comment on Koefoed's or Barnicle's comments.

"Mobility is one of Microsoft's top investment areas and we are 100 percent committed to Windows Phones -- now and in the future," a company spokesperson said in an e-mail to InternetNews.com.

Stuart J. Johnston is a contributing writer at InternetNews.com, the news service of Internet.com, the network for technology professionals.


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