Microsoft (MSFT) Pressured as Smartphone Partner Sees Lower Q1 Growth

December 19, 2012 11:28 AM EST
Microsoft (Nasdaq: MSFT) is lower on the session Wednesday amid chatter that one of its key partners is going through a "slow growth" cycle.

Digitimes reports that HTC expects to revamp its smartphone trajectory following the launch of Apple's (Nasdaq: AAPL) iPhone 5 and declining smartphone prices in China. HTC expects revenue growth of 10 percent to 15 percent for the three months ended March 31, 2013, from prior expectations of 20 percent to 30 percent growth.

A number of new models have been suspended from development in 2013.

Market speculation stems from lagging Windows Phone 8-based smartphone sales. Increased competition is also rising from white-box vendors in China, forcing HTC to move into the sub-2,000 yuan (about $321) market segment, which is not in-line with its currently policy.

HTC CEO Peter Chou and Microsoft CEO Steve Ballmer are in constant contact, with Ballmer making a trip over to Taiwan recently and meeting with the executive. Ballmer is aiming to keep the relationship with Chou upbeat, as Microsoft is relying on vendors like HTC to push its Windows Phone 8 OS into more and more handsets.

Recently, HTC had to cancel plans for a larger-screen WP8 device due to the lower-resolution that the operating system runs on. It wouldn't have been competitive, Chou said. Indeed, HTC's current 8X and 8S models boast screen sizes of just 4.3-inches, smaller than most new offerings for Google (Nasdaq: GOOG) Android-based devices (HTC's own Droid DNA has a 5-inch display).

So, whether expectations for HTC equals Bad News Bears for Microsoft is undetermined. Nokia (NYSE: NOK) also uses WP8 in its Lumia line and it just stuck a deal with the largest wireless company in the world. Investors should simply heed a little caution, as the smartphone market is one of the fastest-growing consumer electronics segments around.

Shares of Microsoft are down 0.7 percent today.

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