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Windows Phone 8: Microsoft quite literally can't lose

If it bombs, Ballmer is no worse off than he is now

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Should Microsoft's mobile operating system Windows Phone 8 bomb, the effect on the software giant's sales would be negligible - but the same could not be said for its prestige.

According to one estimate, sales of WinPho handsets added a mere $736m to Redmond’s coffers in its last fiscal year – that’s just under one per cent of Microsoft’s total business. The Windows client division and the server and tools wing made $18bn each in fiscal 2012, which ended on 30 June. These are Microsoft’s two biggest business units.

Overall, the Steve Ballmer-led giant reported $73bn in sales for everything in that 12-month period.

The WinPho figures are based on some number-crunching by economic consultant Adam Ballantyne on the Seeking Alpha Wall Streeters’ web site here.

Microsoft, which leaves the manufacturing and flogging of the actual handset hardware to Nokia and other partners, doesn’t make its Windows Phone sales public. It’s part of the entertainment and devices (E&D) division, which is also home to Xbox 360, Skype and Media Room, Microsoft’s TV-over-the-internet service. As with Microsoft’s other groups, the E&D numbers are reported as a whole, unless individual lines are thought flattering or help prove some growth point.

For the last fiscal year, E&D reported $9.59bn in revenue – the second weakest performer in Microsoft's portfolio, ahead of the perennial weakling: Microsoft's online business that’s home to search engine Bing, another Redmond catchup effort.

Ballantyne got his numbers by going back over three years of E&D results, and stripping out Xbox 360, Skype and Media Room.

Revenue tells only part of the story, though, and what we don’t get from Ballantyne are profit and loss figures – which would reflect just how much Microsoft spent on staff and marketing among other expenses.

If phone-maker Nokia cuts WinPho 8 prices, and other handset partners follow suit, then this could wipe out any hope of a profit from this mobile endeavour for Microsoft. Much will depend on how many Windows Phones are sold, and the point at which volume rubs out the loss.

As an example of the current state of play, every $49 Lumia phone sold in the US has been sold at an up-front loss to Microsoft's carrier partner AT&T, which is estimated to be spending $450 in marketing per handset.

Windows Phone 8 will launch on 29 October. Ahead of that partners are trying to stoke the market – Samsung announced a Windows Phone on Wednesday and Nokia is expected to make its own Windows Phone 8 announcement on 5 September. Adverts are appearing online and posters are being plastered across railway stations in Great Britain, targeting Google fandroids and Apple fanbois heading to work and hungry for something new.

A long battery life seems to be the big selling point Microsoft and Nokia are pushing on. Redmond-backing bloggers are pumping away, poring over the minutiae of every detail of Windows Phone to shamelessly salivate and froth about each new handset.

If this doesn’t work for Microsoft, nothing will. And if this doesn’t work, then it’ll just be question of how long the company wants to support yet another drain on its resources. Based on Microsoft’s experience with Bing, the answer might be quite some time. ®

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