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Sales of Microsoft’s Windows Mobile phones may have exceeded iPhone sales during the three-month period ended in December, but it appears th…

imageSales of Microsoft’s Windows Mobile phones may have exceeded iPhone sales during the three-month period ended in December, but it appears the company’s division, which once expected 50 percent year-over-year growth, is going nowhere fast. Microsoft (NSDQ: MSFT) provides figures on the sale of its Windows Mobile phone licenses on an inconsistent basis, so here’s the most updated information we have: Microsoft’s CEO Steve Ballmer said last week during the company’s earnings call that it sold 5 million Windows Mobile licenses in the second quarter, and recently at CES that it sold 20 million mobile licenses in the past 12 months.

More on Microsoft’s problem after the jump

The second quarter may indicate that sales are up a bit, but that is probably because of the busy holiday period, rather than any positive trends — Windows Mobile is far below previous forecasts, and has tapered off significantly over the past 18 months. In the fiscal year ended in June 2008, Microsoft sold 18 million licenses, which missed its target by 2 million, but represented a 63 percent increase over year-ago period. But if the 5 million sold in the second quarter is any indication of what is to come, Microsoft might be looking at relatively flat results over the next year. That’s in stark difference to what they had hoped for. In May, Eddie Wu, the software company’s managing director of OEM embedded devices Asia, told Reuters: “50 percent growth is the minimum.”

The reality is that they shouldn’t just barely be beating the iPhone, but blowing it out of the water, given that they were early to the now heating up market and had a great head start. The problem: Microsoft was quick to target the early adopters in the enterprise segment, but incredibly slow at providing a phone to the mass market. Likewise, it failed to innovate as the competition intensified. In the year-plus that Apple (NSDQ: AAPL) has been selling phones, it sold more than 13 million; BlackBerry-maker Research In Motion has been very good at transitioning from offering corporate e-mail on-the-go to consumer-friendly services; and Google (NSDQ: GOOG) has entered the market with its easily personalized Android operating system. Palm (NSDQ: PALM) will soon also launch a new and very competitive operating system. All of these companies became new threats over the last year, right when you see Microsoft’s growth moderate. To be clear, we are not suggesting that Microsoft should start making its own phone hardware, like the others, but it needs to be cutting edge when it comes to the operating system and services running on top of it.

The important thing going forward will be to watch Microsoft’s latest offerings, which are likely to be unveiled in mid-February at Mobile World Congress. Microsoft is expected to announce Windows Mobile 6.5, and a slew of new cloud services. The New York Times was briefed by Andrew Lees, the SVP in charge of Microsoft

  1. Tricia, interesting analysis. comScore data confirms that ownership of Windows Mobile devices grew 63 percent from November '07 to November '08, but it has not kept pace with the smartphone market overall, which grew by 103 percent. RIM, on the other hand, grew 152 percent in the same time period. Interestingly, we did see ownership of Windows Mobile devices plateau in July 07, which was coincidentally around the the launch of the 3G iPhone . . .

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  2. "we are not suggesting that Microsoft should start making its own phone hardware, like the others, but it needs to be cutting edge when it comes to the operating system and services running on top of it. " In fact, you are, because the only way to achieve a great software/OS integration is to have control over hardware development, or at least a heavy influence in the handset development process. The trend towards HTC-like devices capable of running either android or Windows Mobile is not that at all.

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