Microsoft (NASDAQ:MSFT), the world’s largest software maker, commands nearly 80% of the market when it comes to computers, but it hasn’t been as successful in the smartphone market. While its main rivals Google’s (NASDAQ:GOOG) Android and Apple’s (NASDAQ:AAPL) iOS lead the global smartphone market with a 48% and 19% share respectively, Microsoft has yet to make meaningful inroads in this market.
Windows Phone 7 has seen relatively low user adoption despite being hailed by most reviewers as having one of the best user interfaces in recent times. In fact, Microsoft has been making more money from Android patent licensing than from selling Windows Phone 7 licenses to manufacturers (Read: Android is 3x More Valuable to Microsoft than Windows Phone 7).
We currently have a $28 Trefis price estimate for Microsoft, of which 8% is comprised of Xbox, Windows Phone 7, etc.
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Microsoft Expects Windows Phone 7 to Significantly Pick Up by 2015
Microsoft currently has nearly 5% share in the smartphone market worldwide. According to estimates by Gartner and IDC, Windows Phone 7 will be on nearly 20% of all smartphones in the world, by 2015.  However Microsoft’s Windows Phone Marketing Head stated that they expect more than 20% market share by 2015 and that they believe that the current estimates are very conservative. 
Microsoft recently entered into an agreement with Nokia, under which Nokia will adopt Windows Phone 7 as its primary smartphone platform. Samsung, HTC and LG have already announced many new Windows Phone 7 devices, and with Nokia’s push Microsoft may be able to break into emerging markets with lower priced devices.
Microsoft is planning to launch the next version of Windows Phone 7 – Mango – on October 1, which comes with over 500 new features. HP’s (NYSE:HPQ) recent announcement that it plans to abandon webOS has made Windows Phone 7 the only viable alternative to the existing two platforms – Android and iOS. Apple creates its own devices and doesn’t license iOS to other manufacturers, and Google recently acquired Motorola which gives it its own hardware manufacturing arm. This may push manufacturers like HTC and Samsung towards Windows Phone 7. With three of the world’s biggest smartphone manufacturers – Nokia, Samsung, HTC – as partners, we expect Microsoft to capture more than 20% of the global smartphone market too and become another billion dollar business for Microsoft.
However, we don’t expect it to drastically boost Microsoft’s stock price as Microsoft will continue to derive the lion’s share of its revenues from other businesses like Windows, Office and Server.Notes: