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Microsoft Says Windows Phone Will Pass Apple in China

Photographer: Simon Dawson/Bloomberg

Nokia introduced its first handsets powered by Microsoft Corp.'s Windows Phone software. Close

Nokia introduced its first handsets powered by Microsoft Corp.'s Windows Phone software.

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Photographer: Simon Dawson/Bloomberg

Nokia introduced its first handsets powered by Microsoft Corp.'s Windows Phone software.

Microsoft Corp. (MSFT), the world’s largest software maker, said its Windows Phone operating system will propel it past Apple Inc. (AAPL) in China’s smartphone market as its partners release devices costing as little as $158.

Passing Apple is an “interim goal” as the company’s longer-term objective is to supplant Google Inc. (GOOG)’s Android as the local market leader, Simon Leung, Microsoft’s chairman and chief executive officer for the Greater China region, told reporters in Beijing today. He didn’t give a time frame for reaching the targets.

China is poised to become the world’s biggest smartphone market in 2012, making it crucial for manufacturers and sellers in the battle for sales. Shipments of the devices, used to download games and movies, will jump 52 percent to 137 million units in China this year, allowing the country to overtake the U.S. for the first time, research company IDC said.

“We will continue to drive the price down,” Leung said. “Our goal is number one. Having a goal to be number two is not really a goal.”

Microsoft’s manufacturing partners will “definitely” offer devices in the price range of 1,000 yuan ($158), Leung said, without specifying which partners or devices would meet the target. Rather than make its own phones, Microsoft supplies software to handset manufacturers including Nokia Oyj (NOK1V) (NOKIA), Samsung Electronics Co., HTC Corp. (2498) and ZTE Corp. (763), Leung said.

A 16-gigabyte iPhone 4S costs 4,988 yuan at Apple’s online store in China.

Developing Markets

Leung, who spoke before a ceremony to unveil the new Windows Phone 7.5 operating system in China, declined to discuss specific handsets using the system.

A post on Microsoft’s Windows Phone Blog said that HTC has started selling the first Windows Phone in the country. The HTC Eternity is an unlocked handset with a 4.7-inch screen, front- and rear-facing cameras, and comes with popular Chinese apps, the blog said, without giving the price for the handset.

Winston Yung, chief financial officer and spokesman for Taoyuan, Taiwan-based HTC, didn’t immediately answer calls to his mobile phone after normal business hours today.

Widening Reach

Microsoft plans to bring its Windows Phone software to 23 more countries for a total of 63 and put the operating system on less expensive smartphones, it said last month. The company aims to move quickly in developing economies, where Google and Apple are less dominant, before cheaper Android phones can strengthen Google’s position.

Windows Phone will account for 7.5 percent of the China market this year, trailing the 12 percent share of Apple’s IOS and Android’s 70 percent, said Teck-Zhung Wong, a Beijing-based analyst at IDC. By next year, Windows share will rise to 15 percent, surpassing Apple’s 13 percent, while still trailing Android’s 66 percent, he said.

“The Windows Phone ramp-up in China won’t really begin until the second quarter, so the numbers are still low,” Wong said. “From next year the ramp-up will be more rapid.”

By 2016, Windows Phone is forecast to have a 20 percent share in China, ahead of Apple’s 16 percent and trailing Google’s 60 percent, Wong said.

‘Fresh Proposition’

Windows Phone will gain market share from Apple because it represents a “fresh proposition” as an alternative and will also feature in a wider range of devices, Wong said.

“Windows Phone will have a lot of equipment manufacturing partners and more device choice at more different price points,” Wong said. “That alone, as opposed to what Apple is doing, will give Windows Phone an advantage.”

Sandy Shen, a Shanghai-based analyst with Gartner Inc. said Microsoft will have to fight against the prevalence of iPhone and Android devices at the high-end of the market.

“It will take a while before people appreciate the offering,” Shen said. “It’s never too late for a really good product, but there are still improvements to be made on the Windows Phone device itself and to establish the ecosystem.”

Microsoft is exploring the possibility of opening its own retail stores in the country, Leung said today.

He also said he met with senior Chinese leaders yesterday to discuss the nation’s ban on game consoles, including Microsoft’s Xbox, without making any progress.

The ban is “a little bit frustrating,” Leung said.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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