Microsoft's Windows Mobile Upgrade Faces Stiff Competition

Microsoft Corp.'s (MSFT) line of smartphones equipped with an upgraded version of its Windows Mobile software won't do much to shore up the company's position in the hyper-competitive smartphone market.

Tuesday marks the official launch of a line of phones using Windows Mobile 6.5, an upgraded operating system featuring an improved user interface and browser, as well as its own application store. Microsoft has re-dubbed the devices, "Windows phones," and pushed for a coordinated launch along multiple handset makers and carriers in an effort to drum up excitement.

But Microsoft faces a harsh environment, and continues to lose share even as the market grows. Rather than one marquee device in Apple Inc.'s (AAPL) iPhone, Microsoft faces multiple high-profile devices from just about every player in the handset industry.

"WinMo has been a fairly significantly laggard in the smartphone market," said Matt Thornton, analyst at Avian Securities. "I'd be surprised if (the launch) does much to bolster its share."

It doesn't help that industry observers see the latest update as a holdover until a more complete revision, Windows Mobile 7, is released next year. The changes are seen as ineffective against newer and flashier operating systems.

"Windows really need a deep refresh of the platform in order to compete with the likes of Android," said Carolina Milanesi, analyst at Gartner.

A spokesman for Microsoft couldn't immediately be reached for comment.

In the past few months, Google Inc. (GOOG) has established itself as a legitimate threat with multiple devices using its Android software slated to hit the market by the end of the year, including three unveiled at Deutsche Telekom AG's (DT) T-Mobile USA and at least one each by Sprint Nextel Corp. (S) and Verizon Wireless, which is jointly owned by Verizon Communications Inc. (VZ) and Vodafone Group Plc (VOD).

Meanwhile, the iPhone and Research in Motion Ltd.'s (RIMM) Blackberry lines continue to gain market share.

In the second quarter, Windows Mobile had 9.3% of the share for smartphone operating systems, fourth in the world, behind Symbian, RIM and iPhone, according to Gartner.

Research firm iSuppli, however, is uniquely upbeat about Microsoft, noting that the company's ability to tie its mobile operating system into its ubiquitous PC system still gives it an edge.

"While Windows Mobile is losing some share to competitors in 2009, most of the alternatives cannot match Microsoft's complete suite of offerings," said Tina Teng, analyst at iSuppli. "Reports of Windows Mobile's death are greatly exaggerated."

Teng believes Windows Mobile will reclaim the No. 2 position by 2013.

Microsoft's push to apply the "Windows phone" moniker gives it an answer to the "Google phone" tag applied to most devices running on Android. But the company is likely looking to link its smartphone line with the upcoming launch of PC-based Windows 7, which has been garnering positive reviews. The goodwill generated by the new operating system may carry over to its phones.

AT&T Inc. (T) on Monday jumped out with the unveiling of the Tilt and Pure, both Windows Mobile 6.5 phones made by HTC Corp. (2498.W).

-By Roger Cheng, Dow Jones Newswires; 212-416-2153; [e-mail]