Signs Point to New Microsoft Smartphone Push

Windows Mobile

Rumors continue swirling around Microsoft’s next steps in the lucrative smartphone market, with a new report suggesting that the software colossus is planning its own mobile phone.

But while Microsoft is dismissing the claims, other industry observers agree that it has to do something to reverse its slide with Windows Mobile in the face of growing and increasingly powerful competitors, including Apple, Google, Nokia, Palm and BlackBerry maker Research in Motion.

The latest round of Microsoft smartphone rumors were touched off this week by analyst firm Broadpoint AmTech, which predicted in a report that Microsoft (NASDAQ: MSFT) will debut its first-ever smartphone at the annual 3GSM World Congress that kicks off Feb. 16 in Barcelona.

The report said a Microsoft smartphone will use graphics chipmaker nVidia’s (NASDAQ: NVDA) Tegra line of multi-core chips, which is also used in devices by handset maker HTC. However, it questioned the company’s ability to make inroads in the space, considering that it would be starting from square one on making and selling its own handsets.

“We have some concerns on the channel for Microsoft’s handset distribution given the lack of prior carrier relationships and handset qualification history,” Broadpoint AmTech said in its report.

Despite the report, Microsoft waved away claims that it was getting into the smartphone business, which would have also put it at odds with handset manufacturers partners that license its Windows Mobile operating system for use in their own devices.

“Microsoft has no plans to make a phone,” Scott Rockfeld, Microsoft’s director of Windows Mobile, said in an e-mail to “Our core focus has been and will continue to be providing software plus services and working with our partners to deliver great phones. Our partners have been integral in our success to date, and we are excited about the innovation we are bringing to the market together.”

A spokesperson from Broadpoint AmTech declined to comment further on its report. A spokesperson from nVidia referred questions to Microsoft.

The rumors come as a wave of new hardware players, including second- and third-place PC makers Dell and Acer, ready their own smartphone launches this year. At the same time, Microsoft is facing mounting threats to its share in the mobile software space, courtesy of new efforts by Google and Nokia.

It’s unclear precisely what the Redmond software colossus has up its sleeve for 3GSM, having kept quiet on much of its upcoming mobile plans. Late last year, Rockfeld told that the company plans to make a major Windows Mobile platform announcement by March, but did not provide further hints on the news.

There are further reasons to doubt that Microsoft would join Dell and Acer in launching its own smartphones. In the past, it’s used 3GSM to show off reference models used to help direct and standardize partners’ efforts in developing products around Windows Mobile.

[cob:Special_Report]During 2003’s 3GSM World Congress, the company demonstrated a reference platform of a smartphone designed with Intel as its chip partner.

In a reference platform, a company like Microsoft sinks its own R&D efforts into designing a workable demonstration product. That encourages hardware partners to support the design, which in turn helps spread Microsoft’s software. For instance, following 2003’s unveiling of Microsoft’s smartphone reference platform, a handful of device manufacturers announced plans to launch their own takes on the design.

Microsoft’s announcement next week also could relate to an enhancement to Windows Mobile, which is rumored to be close to seeing an incremental upgrade from 6.1 to 6.5. It may also be news relating to the long-rumored release of Windows Mobile 7. Earlier this week, Motorola Co-CEO Sanjay Jha said during his company’s earnings call that Windows Mobile 7 would be on track for release in 2010.

In any case, if Broadpoint AmTech’s report is accurate, it could mean a big vote of confidence for nVidia, which has been steadily expanding in wireless handsets to capitalize on booming demand for increasingly advanced smartphones.

Page 2: What’s in it for Microsoft?

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Last year, nVidia debuted Tegra, which combines CPU, graphics and media processors, system memory controller and peripheral controller on a single, low-power chip that’s smaller than a dime. At the time, nVidia said it had been working with Microsoft to optimize Windows Mobile for the platform.

Broadpoint AmTech also said nVidia is investing resources to support additional mobile operating systems beyond Microsoft’s Windows Mobile 6.1 platform. That list could include Research in Motion’s BlackBerry system or Apple’s iPhone platform, it said.

Smartphone crazy

The efforts by companies like nVidia, Microsoft, Dell, Acer and others all aim to capitalize on smartphones’ strong sales in spite of the recession.

Earlier this week, Dell’s (NASDAQ: DELL) CEO, Michael Dell, confirmed that it would launch its own mobile device. Acer, which is rapidly gaining ground on Dell and HP in worldwide PC sales, is also joining the fray, planning its own smartphone debut during next week’s annual mobile conference.

HP (NYSE: HPQ), meanwhile, launched its 3G HP iPAQ 912 Series Business Messenger smartphone in September, and has been giving indications of seeking to challenge the popular Apple iPhone with a similarly designed touchscreen device for consumers.

PC makers aren’t the only ones scrambling for a piece of the pie. Yesterday, GPS leader Garmin detailed its plans to enter the market, announcing that its long-awaited Nuivphone smartphone would arrive during the first half of the year.

And longtime handheld device manufacturer Palm earlier this year unveiled its new Pre smartphone and WebOS operating system, aiming to muscle in on Apple’s stylish iPhone. Both the Pre and WebOS, which are slated to ship by June, have received wide acclaim for their aesthetics and user-friendliness.

The activity in the market isn’t surprising. While sales of products like PCs remain sluggish, smartphone revenues continue growing at a double-digit pace, although the segment, too, is also feeling the economic pinch. Still, most industry observers are optimistic about the market’s near and long-term potential: Industry analyst Tim Bajarin has said he expects over 65 percent of mobile phones sold in the U.S. will be smartphones by 2012 — up from around 10 percent as of 2008.

Pressure on Windows Mobile

Yet despite the growing smartphone market, Microsoft may be facing trouble ahead in mobile operating systems.

Looming large is Research in Motion’s (RIM) ever-popular BlackBerry. According to recent figures from metrics firm comScore, 3.4 percent of U.S. phone owners use a BlackBerry, compared to 3 percent with a Windows device.

Despite some impact from the economic downturn, RIM (NASDAQ: RIMM) said it’s still expecting strong growth ahead for its offerings. And it said in December that its daily net subscriber accounts hit a record level with the launch of the BlackBerry Storm on Nov. 21.

[cob:Pull_Quote]And then there’s Google. The Internet search leader and its open source Android mobile OS are rapidly gaining traction. The Google-backed Open Handset Alliance, which officially oversees Android development, last year pushed out its first handset, the G1, and industry analysts expect a slew of additional Android-based devices to debut at next week’s 3GSM show.

Meanwhile, mobile phone leader Nokia last year bought Symbian, the most widely deployed mobile OS, and immediately announced plans to open source the software. Symbian already appears on about two-thirds of phones worldwide, making it a key competitor for Windows Mobile. By opening the software, Nokia is aiming to woo still more hardware partners, as well as developers, to the platform.

Both Android and Symbian aim to benefit from the fact that handset makers are seeking to cut costs by embracing open source platforms that don’t carry licensing fees. As of last year, Microsoft charged $8 to $15 for its platform license per phone, according to research firm Strategy Analytics. Even prior to its acquisition by Nokia, Symbian charged an average of $4.10, the researcher said.

Motorola, a long-time Windows Mobile licensee, stated earlier this week it is banking on Android for a substantial growth in its handset business over the next two years.

As a result, Microsoft needs to figure out a way to better compete, observers say.

“Microsoft has been losing ground to the faster-growing Apple, [BlackBerry] and Android,” Neil Mawston, an analyst at Strategy Analytics, told “The current versions of Windows Mobile have developed a reputation for being relatively clunky.”

“The next major version will need to create a Palm WebOS-like transformation in quality and speed and be focused heavily around popular next-generation features like Web 2.0, professional networking and video,” he said.

Update adds comments from Microsoft.

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