Publish date:

Exclusive: Microsoft Crashes Phone Bash

Joining Apple and Google, Microsoft is developing its own phone, and par for the course, the project hit an obstacle.

Updated since 11:44 am EST with stock prices.

NEW YORK (

TheStreet

) --

Apple

(AAPL) - Get Report

did it.

Google

(GOOG) - Get Report

did it. Now it's

Microsoft's

(MSFT) - Get Report

turn.

The Redmond, Wash., software giant is working with computer hardware manufacturer

Asustek

to build its own phone.

The planned device is a so-called candy bar touchscreen design running on Microsoft's newly introduced Windows Phone 7 operating system, says Northeast Securities analyst Ashok Kumar, who talked with Microsoft's suppliers and design partners.

Unfortunately, Microsoft and Asus have encountered some setbacks on the road to manufacturing the next Apple iPhone killer or Google Android annihilator.

Production of the phone has been stopped temporarily. "The phone is still alive," says Kumar, but its arrival to the market will now probably be put off until early next year.

The news comes just four days after Microsoft announced -- at the

Mobile World Congress in Barcelona -- that its Windows Phone 7

operating system will be available on the some phones by Christmas.

Kumar says he hasn't heard what caused the Microsoft phone delay, but he speculates that if it's a software issue, it could apply to other hardware developers and spoil the Christmas timeframe promise.

A Microsoft representative said the company does not comment on speculation.

The news of Asus' involvement confirms some of the speculation around "project pink," an effort by Microsoft to develop its own phone. This would be a move similar to Microsoft's Xbox approach to video games and its Zune entry in media players.

Asus is a Taiwanese computer maker, perhaps best known for its netbook pioneering effort with the Eee PC line of mini laptops. Asus is also the hardware partner that helped

Garmin

(GRMN) - Get Report

break into mobile phones with its nuviphone.

Like Google and Apple before it, Microsoft obviously sees the fast-growing mobile phone market as a land-grab opportunity that's far too important to watch from a distance.

Apple and Google both proved that no prior cell phone experience was needed to jump into the game. Apple is enjoying runaway success with the iPhone. And Google chief Eric Schmidt said this week that Android phone shipments are on pace to exceed 21 million units this year.

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Last month, Google started selling an HTC-built Nexus One phone directly to consumers, a controversial move that served to undercut its Android partners, particularly

Motorola

(MOT)

.

Microsoft risks the chance of upsetting its own partnerships with hardware shops like

HTC

and

Samsung

, two of the manufactuers that have signed on to build new Windows-powered phones.

The move can be seen as only more bad news for other players in the already crowded smartphone market. Outfits like

Palm

(PALM)

are simply

clinging to life

. And Microsoft's pervasive presence in businesses like desktop software and email servers could strike very close to

Research In Motion's

(RIMM)

lucrative enterprise market.

If Apple and Google's phone efforts have proved anything, having loads of money to throw at the project is a huge advantage. With $36 billion in cash and investments in hand, Microsoft has at least one edge on the competition.

Microsoft and RIM shares were up 1%, while Motorola was down 1% in late trading Thursday.

-- Written by Scott Moritz in New York

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