Microsoft Corporation Sees Opportunity In the Low End

Nick Parker, Microsoft's (NASDAQ: MSFT  ) vice president of OEM partners, recently spoke at the Computex trade show in Taiwan. The executive expects Windows and Windows Phone devices to come down in cost this year, possibly as low as $200. Last year, most devices were priced from $300 to $500, but this year we could see that range come down to $100 to $300. In the face of escalating competition from Google  (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) Android, Microsoft has cut or eliminated licensing fees to level the playing field for OEMs. 

With the recent Nokia deal closing, Microsoft now owns the largest Windows Phone vendor. Recent usage statistics show that Nokia devices comprise 94% of the installed base, which makes it very difficult to ask OEMs for a license fee. Parker also teased that HTC may have a new Windows Phone in the pipeline.

Microsoft doesn't have much choice other than to focus on the low end. Apple and Samsung own the high end, and the market has responded favorably to Nokia's offerings in the low end. It's simply the hand that Microsoft has been dealt. The company expects global smartphone units to hit 1.7 billion in 2018 and hopes to grab 15% of those units. That represents 255 million units, which is well above its current levels of production. Furthermore, Microsoft has a lot of work getting to its target operating margin as well.

In this segment of Tech Teardown, Erin Kennedy discusses Microsoft's low-end smartphone ambitions with Evan Niu, CFA.

Editor's note: Evan incorrectly states that Microsoft is targeting 1.7 billion units. That number is a forecast for global unit volumes in 2018, and Microsoft is targeting 15% market share.

(Relevant segment begins at 12:17.)

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