Windows Phone 7 Won’t Move Microsoft’s Stock
Microsoft (NASDAQ:MSFT) plans to release the revamped version of its mobile phone operating system named Windows Phone 7 on October 11, 2010. Microsoft will receive the marketing support of AT&T, which will be the initial exclusive U.S. carrier to sell the Windows Phone 7 smartphones. AT&T will sell three handsets on Windows Phone 7, one each made by Samsung, LG, and HTC.
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According to Gartner, Microsoft’s share of the smartphone operating system market has nearly halved, falling to 5% in the second quarter of 2010 from 9.3% a year ago. Microsoft failed to play catch-up with its competitors Apple (NASDAQ:AAPL) iPhone, Research in Motion (NASDAQ:RIMM) BlackBerry and Google (NASDAQ:GOOG) Android in terms of mobile software innovation.
Microsoft and Verizon launched a line of Kin phones, but the company scrapped it in July, 2010 after only two months in the market. However, Windows Phone 7 could help Microsoft revive its market share in the smartphone OS market.
Microsoft is planning to bring social games like Zynga’s Farmville to the Windows Phone and also bring the traditional 2D and 3D games for the platform. The company is also launching the mobile game platform with more than 60 games. New offerings will be available via the Xbox Live Marketplace, which is the same market place used on the Xbox 360 game console. Xbox Live will be fully integrated into Windows Phone 7.
But it won’t move Microsoft’s stock
We estimate that Microsoft earned around $2.9 billion revenues in 2009 associated with Windows Mobile and selling PC Games [1].
[trefis_forecast ticker=”MSFT” driver=”0997″]
According to BusinessInsider, Microsoft’s license fee for the Windows Phone 7 will be $15 per license. According to the Gartner report, Microsoft’s market share was around 5% in Q2 2010, while the licenses sold for the same quarter was around 3 million on Microsoft Windows Mobile OS. In the scenario where Microsoft doubles its market share in 2011 through Windows Phone 7, it could sell more than 6 million OS licenses per quarter, or around 24 million licenses in 2011. This will mean that Microsoft could earn around $360 million in 2011 from Windows Phone 7 licenses. In this scenario, even a $360 million revenues increase in 2011 will produce negligible upside to the $28 Trefis price estimate for Microsoft’s stock.
You can see the complete $28 Trefis Price estimate for Microsoft’s stock here.
[1] This is an imputed number arrived at by subtracting our estimates for Xbox, Zune, Third-party gaming, accessory and Live subscription revenues from overall Entertainment and Devices Division revenues (provided by Microsoft in its 10-Q & 10-K filings).