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UPDATE 2-Microsoft pulls plug on Kin phones

 * Cancels plans to sell Kin phones in Europe this Fall
 * Kin staffers to be combined with Windows Phone 7 team
 (Adds analyst comments, background, byline)
 SAN FRANCISCO, June 30 (Reuters) - Microsoft Corp  MSFT.O
has pulled the plug on a new generation of smartphones less
than three months after unveiling the devices that were part of
its efforts to catch-up with Apple Inc  AAPL.O and Google Inc
 GOOG.O in the fast-growing mobile market.
 Microsoft said on Wednesday it had canceled plans to sell
its "Kin" phones in Europe this Fall. The company added the
internal team working on the Kin phones would be combined with
the group working on Microsoft's forthcoming Windows Phone 7
software.
 "We will continue to work with Verizon in the U.S. to sell
current Kin phones," Microsoft said in an emailed statement.
 The move underscores the challenges facing Microsoft, whose
software is used on the vast majority of the world's PCs, as it
strives to adapt to consumers' growing taste for handheld
Internet-connected gadgets like smartphones.
 In April, Microsoft said it was shelving an internal
project to develop a tablet PC similar to Apple's iPad.
 Last month, Microsoft reorganized its mobile phone and
video game division, announcing that longtime Microsoft
executive Robbie Bach would retire and that the senior vice
presidents in charge of phones and games would report directly
to Chief Executive Steve Ballmer.
 Ballmer is "looking at the (mobile) business, seeing what's
making money, what makes sense to do going forward," said Matt
Rosoff, an analyst with Directions on Microsoft.
 The Kin phones represented software giant Microsoft's first
foray into designing its own phones. The two Kin models
featured built-in Internet social networking functionality as
well as Microsoft's Zune digital music player and were aimed at
savvy young phone users.
 Microsoft began selling the Kin phones with Verizon
Wireless in May. Verizon Wireless, the largest U.S. wireless
operator, is a joint venture of Verizon Communications VZ.N
and Vodafone Group Plc VOD.L.
 But Rosoff said the phones lacked certain key smartphone
functions, such as the ability to install software
applications, yet had wireless data service plans that were
priced comparably to more full-featured devices like Apple's
iPhone.
 The Kin was also based on a special Microsoft software
called Windows Phone OS, even as Microsoft prepared to release
the new Windows Phone 7 mobile operating system. Smartphones
running Windows Phone 7 are expected to be available this
holiday season.
 "Windows Phone 7 is the real mobile strategy," said Rosoff.
"The fact that it (the Kin) was ever released in the first
place was a mistake. When they went with Phone 7, they should
have quietly killed this project."
 Verizon Wireless spokeswoman Brenda Raney said that the Kin
remains an important part of the company's "portfolio."
 The smartphone market is exploding. According to research
group Gartner, global sales rose nearly 50 percent in the first
quarter.
 Microsoft had a 6.8 percent share of the global market for
smartphone operating systems in the first quarter of 2010,
according to Gartner. Google's Android had 9.6 percent, Apple's
iPhone had 15.4 percent, while Blackberry-maker Research in
Motion had a 15.4 percent share and Nokia's Symbian software
had a 44.3 percent share.
 RBC Capital Markets analyst Robert Breza said that the
battle to win the smartphone market is still in its early
stages.
 "With their vast amount of resources, I would never want to
count out Microsoft," he said. "They can acquire their way into
it. They can approach it in a different strategy."
 Shares of Microsoft were up 61 cents, or 2.7 percent, at
$23.62 in extended trading on Wednesday.
  (Reporting by Alexei Oreskovic with additional reporting by
Sinead Carew; Editing by Sofina Mirza-Reid, Bernard Orr)


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