Microsoft to build its own phones?

REDMOND - Microsoft is making plans for the possible creation of its own mobile phone to help it gain share in the market for handheld devices, according to sources with knowledge of the company's plans.

The company is considering building mobile hardware as a back up, in the event that its current approach of providing software to handset makers such as Nokia and HTC falters, said the sources, who requested anonymity because the plans are private. Microsoft is for now confident that its current strategy will succeed, the sources said.

Chief Executive Officer Steve Ballmer last week introduced the latest version of Windows Phone software, available on devices including Nokia's Lumia 920 and the HTC Windows Phone 8X, to help his company win back share lost to competitors such as Apple. Microsoft has already demonstrated a willingness to build hardware, even if it means competing with long-time partners, through the creation of Surface, a tablet that runs Windows software.

"We are big believers in our hardware partners and together we're focused on bringing Windows Phone 8 to market with them," Redmond, Washington-based Microsoft said in an emailed statement yesterday.

Microsoft, the world's largest software maker, embarked on the Surface strategy on concern that its existing partners, which include Hewlett-Packard and Dell, had not been able to devise their own hardware capable of going head-to-head against the iPad, according to the sources with knowledge of the strategy. Microsoft's Windows Phone group does not currently have comparable concerns regarding handsets, the sources said.

Still, Microsoft wants to ensure that if the handset makers come up short, the company will not have to start building its own hardware from scratch and on short notice, one of the people said.

Mr Doug Dawson, a spokesman for Espoo, Finland-based Nokia, declined to comment, as did Mr Kent Hollenbeck, a spokesman for Taoyuan City, Taiwan-based HTC.

Mr Ballmer highlighted the prospect of Microsoft building more hardware in his annual letter to shareholders last month.

"This is a significant shift, both in what we do and how we see ourselves - as a devices and services company," Mr Ballmer said in the letter. In interviews, Mr Ballmer has declined to rule out making a phone.

At the same time, the CEO is pleased with the work with the handset makers have done, in particular HTC, sources familiar with his thinking said. When Mr Ballmer showed a video of what's on his personal Windows Phone 8 handset on Oct 29, the phone he showed as his own was the new HTC model.

The Wall Street Journal previously reported that Microsoft's component-maker partners in Asia are already testing parts for a Microsoft phone. BLOOMBERG