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Microsoft Is Now an Android Phone Maker

By Evan Niu, CFA - Oct 2, 2019 at 3:10PM

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Or should we say Android Surface maker?

Roughly two years after Microsoft (MSFT 0.71%) officially killed Windows Phone, which had been rebranded as Windows 10 Mobile shortly before its demise, the company is now jumping back into the smartphone market. No, we're not talking about resurrecting the Lumia brand, which was part of the company's disastrous acquisition of Nokia's handset business that culminated in a massive $7.6 billion writedown back in 2015.

Microsoft is now officially an Android phone maker.

Woman holding Surface Duo unfolded

Image source: Microsoft.

Don't call it a phone

At its hardware event this morning, Microsoft took the wraps off a new foldable Surface Duo smartphone running Android. The device looks similar to the larger Surface Neo that Microsoft also unveiled, a dual-screen tablet-laptop hybrid based on the mythical Courier device that has been rumored for over a decade. The Duo has two 5.6-inch displays and can be folded using a 360-degree hinge and used in both landscape and portrait orientations. When used in landscape, the bottom display can be used as a controller or keyboard.

That's a different approach than Samsung took with its Galaxy Fold, which suffered from severe problems earlier this year that required the company to postpone launching the device for several months. The Galaxy Fold uses a single foldable OLED display, complicating the foldable form factor. The Surface Duo also does not have an outside display when closed like the Galaxy Fold does.

Inside of Surface Duo

Image source: Microsoft.

In an interview with Wired, Microsoft hardware chief Panos Panay insists that the device, which can make phone calls and do other phone stuff, is not a phone. "It's a Surface," Panay clarified to the outlet. Surface Duo will run a Qualcomm Snapdragon 855, like other phones, according to the report.

Importantly, Microsoft isn't ready to launch the Surface Duo quite yet. The unveiling was more of a preview for a product that is scheduled to ship in late 2020 in time for the holiday shopping season. No pricing details were disclosed. That will give Microsoft time to get third-party developers on board to start creating content that leverages the unique form factor. "Developers, developers, developers," as it were.

If you can't beat 'em, join 'em

Microsoft getting on the Android bandwagon is both a surprise yet somehow not entirely unexpected. One of the company's greatest strategic mistakes was failing to address the smartphone market competitively, with former CEO Steve Ballmer famously dismissing the iPhone. Alphabet (GOOG -0.54%) (GOOGL -0.57%) subsidiary Google was able to capitalize on the opening, effectively turning Android into the Windows of the smartphone market; Android now commands over 85% market share.

Adopting Android for Surface Pro is arguably one of Microsoft's most significant cross-platform plays, which have ramped up considerably in frequency under CEO Satya Nadella. Microsoft collaborated with Google to incorporate Android into the Surface Duo, and the operating system is heavily skinned to look like Windows 10X, the latest version of the operating system that Microsoft showed off today.

There was really no other way for Microsoft to become relevant in phones again. By using Android, the tech giant at least now has a chance.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Microsoft. The Motley Fool owns shares of Qualcomm and has the following options: long January 2021 $85 calls on Microsoft. The Motley Fool has a disclosure policy.

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