MS aggressive plans to affect WinMo OS

HELSINKI, FINLAND: Microsoft's high-profile deal with handset maker Nokia could help keep aggressive software rivals at bay, but at the same time spell the end for its ailing Windows Mobile operating system.

Last week Microsoft and Nokia unveiled an alliance taking Microsoft's Office applications -- including Word, Excel and PowerPoint -- to a range of Nokia cellphones from next year.

The pact could counter moves by phone makers to use Google's free Android operating system, and keep Microsoft relevant in the mobile market despite a poor showing from Windows Mobile.

"It's possible that Microsoft has accepted it is not going to succeed in the mobile OS race, particularly now that HTC and Samsung seem to be sneaking into the Android party," said Tero Kuittinen, analyst at MKM Partners.

"It may be better to help Nokia throw meatballs into Google's punch bowl -- Nokia still has a chance of spoiling the Android feast," Kuittinen said.

Android has got a lot of traction in the cellphone industry, with many vendors planning to introduce phones using it, but so far only a few Android phones have reached consumers.

"Microsoft appears to be gambling that the benefit of gaining Nokia's scale with Office will offset the possible cost of losing sales among its existing Windows Mobile licensees," said Neil Mawston from Strategy Analytics.

Radical steps were needed, not just to battle Android but also Nokia's own Symbian system, which it has opened to other handset makers for free use -- leaving Microsoft the only operating system maker charging licence fees from handset makers.

But though Microsoft says its is committed to Windows Mobile, the Nokia deal is being read by many as a signal the company wants to limit its involvement. The arrangement also jeopardises sales of smaller handset makers like HTC who have focused on Windows phones.

Struggles

Microsoft has tried to conquer the mobile operating system market for years, but despite heavy investments its success has been limited - and that was before the onset of the recession, which will trigger an overall market contraction this year.

The world's largest software company has not been able to challenge Symbian, the top mobile operating system, and Windows Mobile's market share has at best topped 10 percent compared with Symbian's market share of around 50 percent.

In the last two years the success of RIM's Blackberry and Apple's iPhone has pushed it to No 4 in the market, and Android has started to make headway.

"The Nokia deal could marginalize Windows as a mobile operating system even further," said Kuittinen.

All manufacturers in total sold just 3.8 million Windows phones in April-June quarter, according to research firm Gartner, giving Windows a 9 percent market share among smartphones.

This compares to Nokia selling 3.7 million of 5800 model, its first touch-screen phone, and Symbian sales totalling 21 million phones in the quarter.

"I see this as a tacit admission from Microsoft that WinMo hasn't made the grade. I am becoming more concerned about its future and I worry that Windows Mobile 7 could even be the last throw of the dice," Gartner analyst Nick Jones wrote in a blog.

"Imagine you're (Microsoft CEO) Steve Ballmer, and in two years time WinMo was still 4th in smartphone market share. How much longer would you keep throwing money at it?" Jones said.

Nokia sold 17 million smartphones in the last quarter alone, including 4.7 million enterprise-focused E-series phones -- more than Windows Mobile total sales.

Strategy Analytics estimates Microsoft charges between $7 and $15 per phone from handset vendors -- meaning Windows Mobile created at best revenues of $57 million in the last quarter from $13.1 billion for the group.

All top handset makers, except Nokia, have Windows phones in their offering, but HTC is the only larger phone maker focusing on Windows Mobile. HTC is also expanding its offering, adding Google's Android phones to its portfolio.

Loss-making Sony Ericsson replaced on Monday its chief executive, with analysts saying the sidestep into making Windows phones was one of the key mistakes of previous management.