What does Ballmer have up his smartphone sleeve?(Photo credit: Masaru Kamikura)
As Microsoft gears up to reveal Windows Phone 8 at the end of the month and their manufacturing partners, including Samsung, HTC, and Nokia, are preparing to sell their latest handsets. In this rush of publicity, many are asking if Microsoft is working on their own Windows Phone 8 handset?
While nothing has been confirmed, the idea of a Microsoft designed smartphone to sit alongside a Microsoft designed tablet (the Surface and Surface RT) has many advantages. Let’s run with the assumption that there is such a devices and ask ‘why?’
The biggest benefit of the rumors around a Microsoft branded Windows is going to be the impetus it gives the Windows Phone partners, especially Nokia and HTC, who are both making big investments into the Windows Phone ecosystem. The implicit threat from Redmond is that if they don’t come up to scratch with their devices, Redmond’s back-up plan is to show them how to do it properly.
Of course they could release the handset anyway. Google’s Nexus devices have a lot of credibility with hardware hackers and those looking for the ‘pure’ Android experience will gravitate towards the handsets and tablets from Mountain View. Windows Phone is a much more restrictive environment, with a consistent user interface over manufacturers, so there’s going to be less demand for a vanilla Windows Phone device than vanilla Android, but there would still be demand, especially if sold SIM-free.
Any Microsoft ‘Nexus-like’ Surface device would demonstrate a clear base-line of what Microsoft expects a Windows Phone 8 device to do, just as the Surface RT tablet will define the Windows 8 tablet experience. With less commercial pressure to differentiate and stand out, a ‘Surface Windows Phone’ would be a signpost not just for existing manufacturers, but a starting point for manufacturers coming into Windows Phone fresh.
Microsoft are no strangers to hardware. The Xbox console is the obvious example, but I want to point out the Zune media players, specifically the Zune HD. Running the user interface that would evolve into Metro and beyond to Windows Phone 8, the Zune HD is still one of the slickest, stylish media players out there. It may not have sold in significant numbers, but it shows that Microsoft can deliver quality hardware that delivers to the user.
If Microsoft are looking to have a hero device for Windows Phone that shows their vision, they why not have their own handset on sale through online channels and their retail stores?
It keeps their partners hungry for success and to build better devices; it gives direction and purpose to the platform; and it would allow them to test out variants of the operating system without favouring a manufacturing partner. If it were publicly available it would give Microsoft a small pool of users who they can liaise with directly over new firmware builds and applications, without having to go through carrier certification or worry about how it affects a wide portfolio of devices in a high street window.
Whether it remains as a bargaining chip, becomes a visible test platform, or released to the public, it makes a lot of sense for Microsoft to have their own Windows Phone 8 device ready to go.
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That effort, TypeScript, which was codenamed “Strada” (see more on the codename below), is available in preview form on Microsoft’s CodePlex site. The open-source TypeScript compiler and the spec are there, as is a plug-in for Visual Studio.
As interesting — and controversial, if you check commentsaround the Web — as TypeScript is, the back story is equally intriguing.
Yet another notable on the TypeScript team is someone Microsoft officials haven’t mentioned in a while. Erich Gamma, a high-profile hire from IBM who joined Microsoft in 2011. Gamma is a Distinguished Engineer in Microsoft Zurich. He used to be the technical lead of IBM’s Rational Collaborative Application Life Cycle management work and also the former technical lead of Rational Team Concert. Additionally, he was the original lead of the Eclipse Java development environment and one of the leaders of the Eclipse Project.
Microsoft this week provided details on the upgrade schedule for its Windows 8 apps.
Apps within the new operating system will be updated much like the mobile apps on your phone. “The Store tile will notify you when updates are available, and you can open it and click the updates link in the top right corner to see the list and install the ones you want,” Gabriel Aul with Microsoft’s program management team wrote in a blog post.
Microsoft this week started updating the apps that were included in the release to manufacturing (RTM) version of Windows 8 so they are ready for the Oct. 26 general release of the OS.
First up was Bing, which got an overhaul on Friday, including: richer search results for local content and images, Bing rewards integration, the ability to use zoom on your search results to see related queries, and the option to select an image from Bing to use on your lock screen or in your other apps.
Other apps will also be getting a boost in the days leading up to Oct. 26, including SkyDrive, which will get search functionality, the ability to rename and move folders and files, a new first-run experience, and custom sort order.
On the mapping front, Microsoft said its Maps app will include Bird’s eye view, maps for more than 3,000 indoor venues, driving navigation hints, improved navigation and layout, improved customization, and integration with Bing and Travel apps.
Also due for a revamp are: Mail, Calendar, People, and Messaging; Photos; Finance; News; Sports; Travel; Weather; Video; Music; and Games.
“We are excited to get these updated apps out to all of the people who have been using Windows 8 so far, and to have them ready for the Windows 8 launch for people buying new PCs or upgrading their existing PCs,” Aul wrote.
Aul said there are already “thousands” of apps in the Windows Store, and “we’re working with developers from around the world to bring more in every day.”
Microsoft started accepting Windows 8 App Store submissions in mid-September, which was the last significant milestone before Windows 8 general availability.
The Windows Store was in preview mode for some time. When the Windows 8 Consumer Preview launched back in February, it included a few Microsoft-selected apps, like PuzzleTouch Jigsaw, Air Soccer, Pew Pew, SigFig Portfolio, and Elements Weather. When Windows 8 reached RTM, Microsoft said developers could visit the Windows Dev Center for access to app-building tools, and promised more details soon.
Microsoft has bought multi-factor authentication specialist PhoneFactor with the goal of integrating the company’s technology into its cloud services and on-premises applications.
PhoneFactor, based in Kansas, sells phone-based multi-factor authentication products for enterprises. Its technology was designed to work with both Microsoft enterprise products and with platforms from other vendors.
“Following this acquisition, Microsoft plans to further integrate PhoneFactor’s technology into its Active Directory, Windows Azure Active Directory and Office 365 products,” Bharat Shah, corporate vice president with Microsoft’s Server and Tools division, said yesterday.
For the time being PhoneFactor will continue to sell its products as a standalone service with existing pricing and contracts. However, in the future, the company’s products will be transitioned to Microsoft’s Volume Licensing contracts.
Existing PhoneFactor customers will continue to be supported and the company will remain open for business, PhoneFactor’s CEO Timothy Sutton said.
PhoneFactor’s technology will also continue to work with non-Microsoft products and the company’s existing partners will be able to continue to resell its products.
The use of multi-factor authentication for access to enterprise services and applications can prevent data breaches if user passwords are compromised.
This is because multi-factor authentication requires users to combine something they know, like their passwords, with something they own, like a special hardware device. With PhoneFactor’s technology that device is the user’s mobile phone or tablet.
The company offers three methods of phone-based authentication: calling users and waiting for them to answer and press the “#” key; texting users a passcode and waiting for them to send it back via SMS; or pushing an authentication request to an app installed on the users’ phone and waiting for them to hit the “Authenticate” button.
Optionally the company also offers the possibility of using voiceprints in order to verify that the phone is actually in the user’s possession. When this option enabled, the user also needs to speak a short phrase when called during the authentication process.
In recent years multi-factor authentication has been implemented into many online services. Google, Facebook, Yahoo Mail, LastPass and Dropbox are just some of the websites that offer it as an option for increased account security.
Microsoft has not adopted the technology for its new Outlook.com webmail service yet, but it requires it by default on billing.microsoft.com or xbox.com when users buy points.
The German court’s ruling ends a run of three previous patent victories scored by Microsoft over Google this year.
However, it has little practical effect since Microsoft has already secured bans against several Motorola products.
These include sales restrictions preventing stores offering about a dozen devices including the Droid Razr and Razr Maxx handsets.
The latest case involved software application programming interfaces (APIs) used to allow software developers to write a set of code guaranteed to work with different mobile devices’ radio antennas.
Potential uses include letting a mobile phone select a network operator; transfer a call; send and receive a text message; and access individual files stored on the Sim card.
Microsoft laid claim to the methodology in a filing submitted in 2002.
The judge did not explain his reason for rejecting the claim.
Microsoft had previously won German cases based on separate patents related to SMS messages, a way to handle user-input and use of the file allocation table (Fat) file system architecture.
“This decision does not impact multiple injunctions Microsoft has already been awarded and has enforced against Motorola products in Germany,” said David Howard, associate general counsel at Microsoft.
“It remains that Motorola is broadly infringing Microsoft’s intellectual property, and we hope it will join the vast majority of Android device makers by licensing Microsoft’s patents.”
A spokeswoman for Google said: “We are pleased with today’s favourable outcome for Motorola Mobility, but won’t be able to provide more specific information on this matter.”
While Microsoft dominates the PC operating system market, it is a relatively small player in the fast-growing smart device sector.
Microsoft hopes that the launch of Windows Phone 8 boosts demand
Thanks to the success of its Android software, Google’s system powered 68.1% of global smartphone handsets in the April-to-June quarter, according to a study by Canals.
By contrast Microsoft’s Windows Phone system had a 3.2% share.
But Microsoft makes money from most Android device sales as it has struck patent licensing deals with other handset makers, including Samsung and HTC, for the use of its technologies in the system.
When Google decided to buy Motorola it said that the action was chiefly driven by a desire to own its 17,000 patents.
The move has allowed it to directly challenge Microsoft and others’ claims to set a precedent for other firms using its software, albeit with mixed success.
Motorola has scored its own victories. Earlier this year the division won the right to prevent Germany’s stores from selling Microsoft’s Xbox 360 games consoles, the Windows 7 operating system, the Internet Explorer browser and Windows Media Player.
However, it has not been able to enforce the ban and faces a related hearing next month.
Meanwhile the two firms are involved in a series of other intellectual property fights in the US. These have already led to an import ban being placed on some Motorola devices.
Daniel is a member of The Motley Fool Blog Network — entries represent the personal opinions of our bloggers and are not formally edited.
As the tech sector matures, a number of large-cap companies are making the transition from high growth/high volatility companies, to more stable value stocks. Microsoft (NASDAQ: MSFT) is a good example of one of these companies. With its recent dividend hike, the company is increasingly positioning itself as an income stock. Additionally, with the impending release of Windows 8, the stock may be looking at some potential upside in the near future. As such, Microsoft may be worthy of consideration to value investors looking for exposure to the tech sector.
In terms of fundamental valuations, the stock looks pretty good at the moment. With a P/E of 14.9x Microsoft is selling at a substantial discount to the 22x sector average. Oracle(NASDAQ: ORCL), a tech giant that competes with Microsoft in the enterprise software market, is trading at 15.7x earnings; meanwhile Apple (NASDAQ: AAPL), a major competitor in the mobile operating system segment, also trades at 15.7x. Microsoft has a fair price to book of 3.8 and a stellar operating margin of 38%. The company has little debt to worry about, with a LT debt to equity ratio of about 16 and a huge return on equity of about 40%.
Microsoft’s quarterly dividend has recently been raised from $0.20 to $0.23, which represents a dividend hike of about 15%. Since 2010, the dividend has shot up by about 77%, which makes the stock an increasingly compelling buy for income. The payout ratio currently stands at 38%, which means the company has room to grow its dividend even further. The yield now stands at around 3%, which puts it ahead of Apple as well as Oracle.
Strategy and Competition
While Apple has solidly established itself in the smartphone operating system market, Microsoft still reigns supreme in the computer OS market, which is its main source of revenue. With the release of Windows 8, investors who have been waiting so long for an upside break-out may finally be rewarded, although slowing PC sales due to the popularity of smartphones and tablets may put a damper on growth.
Nevertheless, Windows Phone 8, the smartphone version of its new operating system, may signal a new era for Microsoft, benefiting the software giant as well its hardware partner Nokia(NYSE: NOK). Windows 8 displays a firm commitment from the company to branch out in the mobile computing segment, an area in which it has long lagged behind and has been overtaken by other companies.
Still, it remains to be seen to what degree Microsoft can establish itself in this new growth market. MS’ search engine division has traditionally been a weak performer and is still losing money at the moment. Microsoft’s two largest competitors, Apple and Google (NASDAQ: GOOG), continue to innovate their product line and have firmly capitalized upon the mobile market, while Microsoft continues to rely heavily on traditional activities. This is reflected in the stock price; Google as well as Apple have been setting new highs in recent months, while Microsoft remains largely range-bound. The main risk for Microsoft is thus its inability to remain competitive in a quickly changing market.
In summary, with the maturation of the tech sector, many firms are shoring up their balance sheets and are beginning to offer fairly decent dividends. With a yield of 3%, Microsoft is starting to look attractive as an income stock. The release of Windows 8 on the PC, smartphone, and tablet may provide the stock with a much-needed upward catalyst, as it hasn’t really gone anywhere in the last decade or so. However, stiff competition from other tech giants are putting pressure on Microsoft to innovate and stay competitive, and it remains to be seen how Microsoft will rise to the challenge in years to come.
It’s been a frustrating path for Microsoft investors, who’ve watched their company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand new premium report on Microsoft Fool analysts explain that while the opportunity is huge, the challenges are many. Also provided are regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.
Our snap reaction to Microsoft’s decision to make its own phone is that it’s a big mistake. On further reflection, we think it makes sense. Microsoft is pretty much screwed either way, so it might as well go down swinging and make its own phone.
This argument is weak, though. As long as Microsoft makes a phone that’s as good as Nokia and HTC, then that’s good enough.
Smartphones are all quickly reaching the point of parity on the specs level. The difference in performance between a Samsung Galaxy S III and an iPhone 5 is negligible.
It all comes down to the look of the hardware, the software, and the marketing of the phone. If Microsoft can make a good looking phone that competes with its partners, then markets it well, the Microsoft has as good a chance as anyone.
But won’t Microsoft infuriate its partners? We’ve got two words to say about that: Who cares.
Besides, the entire idea of competing with partners is overblown. Imagine if Apple suddenly had a change of heart and decided to license iOS to anyone in the world. Do you think HTC, Samsung, and even Nokia, would pass on using iOS because Apple makes iPhones? Of course not. Those companies would immediately jump at the opportunity because iOS is good software people love.
If, against all odds, Microsoft builds a phone, and it’s a smash hit, it’s good news for HTC and Nokia. It means consumers want Windows Phone 8 software. Nokia and HTC will be able to go to consumers with alternative options to Microsoft’s phone.
There’s another reason for Microsoft to do its own phone. The Windows business model that once made Microsoft the most valuable company in tech doesn’t work in mobile. It can’t charge partners $80 for Windows Phone software. It charges much less, thus making less money. If it can sell phones, and copy the Apple model of charging carriers $600 for a phone that sells for $200, then it could net $400 per phone, which is obviously much better.
Most importantly from Microsoft’s perspective, the Nokia and HTC phones are not working. We can’t emphasize this enough. We want to shout it: Microsoft’s current plan is not working!
So, it can stick with Nokia and HTC because it doesn’t want to hurt their feelings, or it can strike out on its own and take a chance building and marketing its own phone.
When you think about it like that, Microsoft making its own phones isn’t a crazy decision, it’s Microsoft’s only decision.