Microsoft Believes Cheaper Windows Phone Could Win Market Share

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Microsoft

Microsoft (NASDAQ:MSFT) launched its new Windows Phone platform almost a year ago. Windows Phone has received encouraging feedback for its innovative user interface, but Microsoft hasn’t been able to translate that into sales. Microsoft CEO Steve Ballmer admitted that Windows Phone sales have been below expectations, but Microsoft is trying hard to compete and gain more market share in a market currently dominated by Google‘s (NASDAQ:GOOG) Android and Apple‘s (NASDAQ:AAPL) iOS.

Among these efforts, Microsoft announced that it is trying to bring the production costs of Windows Phone handsets down 50% to nearly $200, which would enable it to compete in the budget segment with Android. [1] It is also working exclusively with Qualcomm (NASDAQ:QCOM) to optimize its processors and chipsets for Windows Phone.

We currently have a $32 Trefis price estimate for Microsoft, which is around 15% above its current price estimate.

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Check out our complete analysis for Microsoft.

Microsoft Partnering with Component Suppliers to Bring Prices Down

Microsoft currently operates only in the high end smartphone segment while the budget smartphone segment is dominated by Android and Symbian. Microsoft announced that it is cooperating with component manufacturers to bring prices down for all Windows Phone device manufacturers. It is working exclusively with Qualcomm to develop smartphone chips optimized to work with Windows Phone.

Microsoft recently rolled out the Windows Phone 7.5 Mango upgrade, and also announced that it is readying a series of new dual core, LTE smartphones to compete with the new Android smartphones and the iPhone 4S. It is also pushing its partners to increase their marketing and advertising spend for Windows Phone devices.

We expect Microsoft to gain significant market share with Windows Phone in the coming years, but it will likely be just a blimp on Microsoft’s overall revenues for the near future. Microsoft is expected to make much more by licensing patents to Android device manufacturers, than from selling Windows Phone licenses.

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Notes:
  1. Microsoft to Help Halve Phone Costs Next Year in ‘Volume’ Drive, Business Week []