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Microsoft to Help Halve Phone Costs Next Year in ‘Volume’ Drive

Microsoft to Help Halve Phone Costs Next Year
A Microsoft Corp Windows Phone 7. Microsoft is competing with Google Inc. and Apple Inc. to gain a bigger share of the $207 billion mobile-phone market. Photographer: Andrew Harrer/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. will allow phones using Redmond, Washington-based Microsoft’s mobile operating system to be produced for less than $200, compared with $400 when the software was released last year, Andy Lees, head of the Windows Phone division, said in an interview in Hong Kong today. The actual retail price will be determined by operators, he said.

Microsoft is competing with Google Inc. and Apple Inc. to gain a bigger share of the $207 billion mobile-phone market, where it lags behind the Android and iOS platforms. The first models using the latest version of Windows Phone 7, called Mango, have already been shipped in Japan, with devices to be available in China next year, Lees said.

“Volume, volume, volume,” is Microsoft’s main motivation for helping vendors offer cheaper handsets, Lees said, declining to identify phone makers.

Models using Mango to be introduced in the next few months will require as little as $220 to produce, before the cost falls further in 2012, Lees said.

“We are supporting componentry that will allow us to go below $200,” he said, referring to handset production costs.

Lower prices will mean less royalty revenue per phone because Microsoft offers tiered pricing, based on the manufacturing cost of the handset, he said.

Microsoft works exclusively with Qualcomm to develop chips that power handsets using its system, allowing it to specify technical details to ensure devices run more smoothly, the executive said.

There is currently no plan to work with other semiconductor makers for Windows Phone 7 devices, he said.

HTC Corp., Samsung Electronics Co. and ZTE Corp. are among device makers that have already developed handsets using Windows Phone 7. Nokia Oyj, which has agreed to develop phones with Microsoft, will outline its plans for Windows phones next week, Lees said.

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