Microsoft new phones win favorable reaction

SEATTLE/NEW YORK Mon Oct 11, 2010 7:37pm EDT

1 of 5. The new Windows Phone 7 is seen at the Windows Phone 7 launch news conference in New York, October 11, 2010.

Credit: Reuters/Jessica Rinaldi

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SEATTLE/NEW YORK (Reuters) - Microsoft Corp's last-ditch attempt to reclaim its prominence in the smartphone market won favorable early reviews on Monday, but it may come too late to claw back customers from Apple Inc and Google Inc.

The world's largest software company, along with network carriers and handset makers, is planning to spend more than $100 million on marketing the phones, which analysts said could compete with Apple's iPhone, but that may be a struggle.

"We are the first to admit that Microsoft is fighting for third place, not first or even second, at this point; but we believe this is a key step toward rebuilding confidence in their ability to innovate in mobile," Wells Fargo analyst Jason Maynard said in a research note.

"This isn't going to move the market share needle in the short term."

"They have phones with slide-out keyboards, larger screens, high definition outlets -- all features that the iPhone does not have," said Ross Rubin, a consumer electronics analyst at retail research firm NPD Group. "That should help Microsoft's competitive position. There will always be a segment of customers that seek out the newest devices."

The line-up of nine new phones from Samsung Electronics Co Ltd, LG Electronics Inc, HTC Corp and Dell Inc will start to appear in stores later this month in Europe, and in November in the United States on AT&T Inc's network.

The handsets are much closer in look and feel to Apple's iPhone than earlier Windows phones, with colorful touch-screens and "live tiles" on the starting screen for quick access to email, the Web, music and exclusively, games on the Xbox system.

"The user interface is quite innovative because it takes advantage of those precious few seconds when eyes hit the glass and actually gives you something useful," said Al Hilwa at research firm IDC. "It will probably be copied by other platforms over time."

Microsoft said the launch will be backed by heavy television advertising in the run-up to the holiday shopping season, as it looks to vault itself back into the market.

"This is Microsoft's last chance to be a major player in the smartphone market," said analyst Jack Gold of J.Gold Associates. "Microsoft will be required to undertake a massive consumer education campaign if it wants to stand a chance of differentiating itself from iPhone and Android, which have far greater market presence."

British actor and writer Stephen Fry, an outspoken fan of Apple products, praised the phones on stage at a launch event in London.

"When I got one of these (phones) my first feeling was it's fun to play with. I have felt enormous pleasure using this phone," said Fry, who was invited, but not paid, to speak at the event. "Yes, I love Apple, but I'm not a monotheist. I want biodiversity in this market and all of us that love it should welcome that too."

LAST CHANCE

The new phones represent Microsoft's last chance to catch up in the smartphone market with rivals who overtook it in the past few years.

"I've been looking forward to this day for some time," said Microsoft Chief Executive Steve Ballmer, showing off the nine phone models at a launch event in New York.

Ballmer, who has admitted his company "missed a generation" with its recent unpopular phone offerings, said the new phones would eventually be available from 60 mobile operators in 30 countries.

The first phone from AT&T, priced at $200, will be available on November 8, said Ralph de la Vega, CEO of AT&T Mobility and Consumer Markets. Some phones will be available October 21 in Europe.

AT&T will give the phones ample room in its stores for promotion. "We're expecting these to be really big sellers," said Jeff Bradley, AT&T's senior vice president for Devices.

"This is a marathon, not a sprint. They are not going to change their position today or in the next month," said Michael Gartenberg, an analyst at research firm Gartner. "But they've established themselves as a credible player."

Microsoft did not give any sales forecasts for the new phones.

NEW FEATURES

The new phones, which are built on the Snapdragon processor made by Qualcomm Inc, represent Microsoft's best attempt yet to introduce live connections with its other products and the Web.

Users will be able to play Xbox Live games on the phones, link to Windows Office, use the Bing search engine and download and play music through its Zune music software. TV episodes are also available for download via AT&T's U-verse service. Updates from Facebook will be incorporated into a user's contacts.

Game maker Electronic Arts Inc said it will introduce a wave of games for the new phone software this holiday season. That should boost the phone's popularity among gamers, especially the 25 million subscribers to Microsoft's Xbox Live gaming network.

Microsoft has a market share of only 5 percent in the global smartphone market, according to research firm Gartner, compared with 9 percent a year ago. Google's Android system has a 17 percent market share, jumping from only 2 percent a year ago.

Gartner expects almost 270 million smartphones to be sold worldwide this year, up 56 percent from last year.

In comparison, Gartner expects only a 19 percent increase in worldwide PC sales to 368 million units this year.

Microsoft shares closed up 2 cents at $24.59 on Nasdaq. AT&T shares rose 10 cents to $28.32 on the New York Stock Exchange.

(Reporting by Bill Rigby and Sinead Carew; Additional reporting by Paul Sandle in London; Editing by Andre Grenon, Maureen Bavdek and Richard Chang)

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