With Rumors of a Microsoft-Made Smartphone, Is the Company Considering More Hardware?

By Anthony Shields  OCT 03, 2012 12:40 PM

Software development has always been Microsoft's forte, but is the company now trying to have its cake and eat it, too?

 


MINYANVILLE ORIGINAL  For decades now, Microsoft (NASDAQ:MSFT) has had a system that has served it pretty well. It would focus on what it does best: making software and forging strong partnerships with hardware developers to run its systems. Yet with Apple’s (NASDAQ:AAPL) relatively quick rise to prominence and consumers’ disinterest with its products, the company seems to be inching its way into the hardware market as well.
 
In truth, this move shouldn’t come as that big of a surprise. Microsoft’s Xbox 360 is one of its most profitable products, and its soon to be released Surface tablet may actually catch on with consumers due to its unique abilities. However, according to technology website BGR, Microsoft is silently developing hardware for its own version of the Windows 8 phone, an investment that would seemingly solidify Microsoft’s interest in the hardware market.      
 
BGR’s source reportedly didn’t reveal much, but stated that the phone was in its last stages of development, will most likely launch in the coming months, and is geared to compete with high-end devices such as the iPhone 5 and Samsung’s (PINK:SSNLF) Galaxy S III. The article went on to claim that the phone will launch under Microsoft’s Surface brand, meaning that the tablet may also have another talking point by the time of its release, should the devices be interconnected.
 
If the source is correct, this would be a brazen move for Microsoft, but not one without merit. Although the Windows Phone is slowly gaining market share, Nokia’s (NYSE:NOK) unveiling of the Lumina 820 and 920 failed to generate the buzz both companies had hoped for and the company is very aware that its gains are only made possible by the visible decline of former smart phone titan, Research in Motion (NASDAQ:RIMM).


 
Naturally, Microsoft’s friends at Samsung and Nokia would be much less happy about an official announcement, as this would cut into its business in a big way. Should Microsoft gain any traction with its own Windows 8 hardware, Samsung could kiss its profits from its deal with Microsoft goodbye, and Nokia would be left completely out in the cold.
 
The phone’s development may come at just the right time, because Microsoft’s much-anticipated new software Windows 8, has been subject to harsh rumors and negative speculation lately. Last Wednesday, Bloomberg reported that Intel’s (NASDAQ:INTC) CEO Pat Otellini told employees in Taiwan that Windows 8 would still have quite a few bugs by its launch date. Otellini would later rescind his comment and express that he thought the operating system was Microsoft’s best to date, but it’s likely that his retraction will do little to regain consumer confidence.
 
Worse may be the system’s apparent lack of apps, which will do little to pique consumer interest. This is an issue that Microsoft has been quick to address, as it has opened more labs to develop its own apps and facilitated methods in which independent developers can produce its programs. Still, Microsoft has done little to make Windows 8 competitive with iOS or Android (NASDAQ:GOOG).
 
Microsoft’s own forums are also reporting that consumers are slow to adapt to Windows 8. A poll of 50,000 users that have tried the product cited some positive things about the system, but overwhelmingly declared that they favored Windows 7 at the moment. Perhaps that’s just due to familiarity, but the finding shows that as things stand, Microsoft’s new OS might not be the hot seller they had hoped for.
 
Considering these recent Windows 8 issues, a Microsoft-designed phone might provide an interesting way to stack the deck. A Microsoft phone could be a risky investment that could ruin the company's relationships with many of its partners, but it could also strengthen the Windows 8 brand in a major way, and create more interest in Surface and its features. We’ll be looking for an official announcement in the months to come, especially during the Windows 8 launch on October 26.
No positions in stocks mentioned.