Microsoft recently reported their quarterly earnings. The results were generally good for their Xbox and Office divisions, but for Windows, the company saw declining sales. Strangely, Windows Phone 7 got no more than a passing mention in the conference call. For Microsoft, Windows Phone 7 is a long-term business opportunity, and it has yet to break even. It took the Xbox division over six years to become profitable thanks to extremely high research and development costs, and other expenses relating to keeping the business viable. The same might prove true for Windows Phone 7, but thanks to Microsoft’s licensing model (where OEMs may Microsoft for each and every copy of Windows Phone 7 they use), the road to profitably shouldn’t be as long, just as long as Microsoft continues to sell a lot of Windows Phone 7 devices. The Nokia partnership is likely to help, as the CFO of Microsoft remarks:
In November, we took the first step in creating a new mobile ecosystem by launching Windows Phone 7. And this quarter, we took the next step by entering into a broad strategic alliance with Nokia. Together, Nokia and Microsoft will innovate with greater speed, and provide enhanced opportunities for users and partners to share in the success of the new ecosystem.
Also helping the pace to profitability will be the new chassis requirement that will allow OEMs to use less expensive components in Windows Phone 7 smartphones, thus driving down the cost of devices.