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Did Microsoft Just Shoot Down a Surface Phone?

By Evan Niu, CFA - Apr 17, 2013 at 11:00PM

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A Windows Phone exec says Microsoft isn't planning on launching a Surface Phone anytime soon, but that doesn't mean the software giant doesn't want to be prepared if the need arises.

Following a big, bold bet on first-party tablets, a Surface Phone simply seems inevitable. If it is pursuing such a device, Microsoft (MSFT 2.76%) is playing it close to the chest. At AllThingsD's Dive Into Mobile conference earlier this week, Windows Phone exec Terry Myerson downplayed the idea of the software giant jumping directly into the smartphone hardware ring.

Myerson said the only reason the company would do so would be if current hardware partners like Nokia (NOK 0.98%) or HTC weren't providing an experience in line with Microsoft's standards. Nokia's been a "great partner" thus far, according to the exec, and he's happy with the Windows Phones that Nokia has in its pipeline.

Still, just because Microsoft may not need to get into smartphone hardware yet doesn't mean it's not prepared to. In November, The Wall Street Journal reported that Microsoft was exploring first-party smartphone designs with Asian component suppliers. Preliminary steps, but steps nonetheless.

Steve Ballmer has made it quite clear that Microsoft's future is becoming a devices-and-services company, which is hard to do without more devices. Ballmer also specifically said that Microsoft would "obviously" jump into other hardware markets if there were "opportunities to set a new standard."

In tablets, Surface RT launched alongside Windows 8, so Microsoft didn't really even give OEMs a chance to prove themselves before the company stepped up. In smartphones, Nokia is the dominant seller of Windows Phones, selling nearly three-quarters of all smartphones on that platform in the fourth quarter.

Nokia has even acknowledged the inherent risk, even if CEO Stephen Elop has said Microsoft's entry could serve as a "stimulant" for the platform. For example, this is listed as a risk factor in Nokia's most recent annual report:

Microsoft may make strategic decisions or changes that may be detrimental to us. For example, in addition to the Surface tablet, Microsoft may broaden its strategy to sell other mobile devices under its own brand, including smartphones. This could lead Microsoft to focus more on their own devices and less on mobile devices of other manufacturers that operate on the Windows Phone platform, including Nokia.

I interpret Myerson's comments as indications that Microsoft isn't planning on pulling the smartphone trigger anytime soon (a 7-inch Surface is more pressing), but that doesn't mean it can't be locked and loaded should the need arise.


 
 
 

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