Windows Phone 7's future looks bright--until the numbers are crunched

Ever have one of those weeks where nothing seems to go right? Microsoft knows all about it. Coming off a recent Gartner report stating that worldwide sales of smartphones running Google's Android mobile operating system exceeded sales of devices powered by Windows Mobile by 1.5 million in Q1, Microsoft got trumped by another rival when Apple usurped its crown as the world's most valuable technology company based on market capitalization: As of last week, Apple is valued at $222.1 billion, trading at a stock price 24 times its earnings, while Microsoft dropped to a capitalization of $219.1 billion, trading at 12.83 times its earnings. Microsoft CEO Steve Ballmer was quick to dismiss questions about losing its title to Apple--at a press conference in New Delhi Thursday, he said the firm is instead focused on launching new products and improving profitability. "We are executing very well, that's going to lead to great products and great success," Ballmer said

Ballmer's comments seem more than a bit disingenuous in light of the upheaval that swept through Microsoft's Entertainment and Devices unit last week. E&D president Robbie Bach will retire this fall--senior VP Andrew Lees will continue leading the software giant's Mobile Communications Business and fellow senior VP Don Mattrick will remain at the helm of the Interactive Entertainment Business, with both reporting directly to Ballmer, who will assume command of the E&D unit effective July 1. A 22-year Microsoft veteran, Bach oversaw E&D Division efforts including the Windows Phone mobile operating system, the Xbox gaming platform and the Zune multimedia initiative; the unit, formed in 2005, accounts for about 11 percent of Microsoft revenues. Bach's retirement coincides with the exit of another Microsoft veteran, Entertainment & Devices chief experience officer and chief technology officer J Allard, also announced last week.

The Wall Street Journal reports that several current and former Microsoft employees express growing concern about the company's struggles in the consumer market, especially the mobile segment. So when the blogosphere erupted late last week with reports that Microsoft told a developer conference audience it expected sales of devices based on its forthcoming Windows Phone 7 OS to top 30 million by the end of 2011, citing market data from research firm IDC, more than a few onlookers did a double take. One problem: IDC has no idea where those numbers originated. "We don't know who used it and where it came from. It's kind of disturbing," IDC wireless analyst Will Stofega told The Seattle Times. "We're really pissed." In reality, IDC anticipates that next year Microsoft will sell about 32 million devices based on Windows Phone 7 and the current Windows Mobile 6.5 combined, compared to sales of 42 million for Android and 36 million for iPhone--meaning Microsoft's future looks a whole lot like its present, with many more bad weeks still to come. -Jason