Microsoft to Help Halve Phone Costs Next Year in ‘Volume’ Drive
Oct. 20 (Bloomberg) — Microsoft Corp. expects production costs of handsets using Windows Phone 7 software next year to drop by more than half from when the platform was introduced. — Cooperation with parts makers including Qualcomm Inc …
Context & Ripple Effects
Microsoft's phone push has been expensive from the start: in August 2010 it committed more than half a billion dollars to jump-start Windows Phone 7 before a single device shipped. A year on, the platform finally has retail presence — AT&T is launching the HTC TITAN and Samsung Focus S and Focus Flash, and Nokia is preparing to announce its first Windows Phones at Nokia World.
The cost pledge lands alongside Microsoft's Q1 FY2012 results ($17.37B revenue, up 7%), meaning the phone business is being funded from a profitable core rather than under immediate earnings pressure. Andy Lees' team is framing the next phase around manufacturing scale: working directly with parts makers such as Qualcomm to compress the bill of materials that made early Windows Phone 7 devices uncompetitive.
First-order effects
- OEMs building Windows Phone 7 handsets — HTC, Samsung and Nokia — get a path to materially cheaper devices in 2012, letting them price into Android's mid-tier instead of only the premium band where the platform launched.
- Qualcomm and the other cooperating parts makers lock in deeper design-in across the Windows Phone lineup, converting Microsoft's volume ambition into guaranteed component demand.
Second-order effects
- Carriers like AT&T gain room to subsidize Windows Phones more aggressively against Android rivals, forcing Google's licensee camp to defend mid-market price points it currently owns uncontested.
- If production costs really fall by half, Microsoft's effective per-device economics improve enough to sustain further launch subsidies of the kind it paid in 2010 without repeated cash outlays.
Third-order effects
- Mobile OS share battles increasingly turn on bill-of-materials engineering rather than software features alone — platforms that cannot organize their supply chains toward component-scale pricing risk being priced out of the volume tiers where handset units actually sell.
The trend: Smartphone platform competition is shifting from launch marketing to supply-chain economics, with OS vendors brokering component partnerships to reach mid-market price points.