Microsoft (NASDAQ:MSFT) launched Windows Phone 7 almost a year ago, and several major device manufacturers like HTC, Samsung and LG launched Windows Phone 7 smartphones right away. The initial reviews were very encouraging though the released sales data came in low compared to Google’s (NASDAQ:GOOG) Android and Apple’s (NASDAQ:AAPL) iOS, its main competitors. At the BUILD conference, Steve Ballmer confirmed this disappointment when he stated, “We haven’t sold quite as many probably as I would have hoped we would have sold in the first year.” 
Microsoft makes most of its revenues from Windows and Office. Windows Phone 7 isn’t expected to turn into a major revenue driver anytime soon. The entire Entertainment and Devices division, including the Xbox and Windows Phone 7, accounts for a little under 10% of the total $28 Trefis price estimate for Microsoft.
Windows Phone 7 Fits in Nicely with the Windows 8 Ecosystem
Microsoft just showcased the developer preview of Windows 8, its next generation operating system for computers and tablets. We wrote recently on how Windows 8 could be a hit for Microsoft in a note titled Windows 8 Shows Blockbuster Potential with Tablet Focus & Major Overhaul. It comes with the Metro UI, similar to Windows Phone 7.
Microsoft is also planning to launch an app store to supports its range of devices including desktops, tablets and smartphones in a nod to Apple’s powerful ecosystem.
With Google’s Motorola acquisition, Windows Phone 7 may now be widely viewed as the best alternative to Android and iOS. Samsung and HTC are expected to launch more smartphones powered by Windows Phone 7 as well as tablets powered by Windows 8.
While Windows Phone 7’s current market share remains dismal, it is poised to become one of the top three smartphone platforms in a couple of years, with Android and iOS. If it takes off, it could impact Microsoft’s stock price positively. Tweak this chart to see how Windows Phone 7 revenues could affect Microsoft’s stock.Notes: