Microsoft CEO Steve Ballmer has admitted that its mobile business has missed a generation.

Windows Phone 7 is scheduled for launch around the end of the year, and it could well miss the holiday sales season. Even if Microsoft manages to launch Windows 7 smartphones in time for holiday season sales, that might not do it much good.

"Microsoft's going to be a competitor, but possibly not out of the gate," Al Hilwa, a research director at IDC, told TechNewsWorld. "It may take a refinement or two after that to be in the same league as some of the other players."

Microsoft's main attraction is the development model for WinPho7, which is based on .NET, giving the operating system the ability to integrate readily into the enterprise, Hilwa said. However, the development model may not be fully ready when WinPho7 devices hit the market, he warned.

Since killing off the Kin line, Microsoft has announced that WinPho7 smartphones will focus on the enterprise.

"The best value of Windows smartphone is in their tight integration with Microsoft Office and SharePoint," Charles King, principal analyst at Pund-IT, told TechNewsWorld. "But Microsoft faces a formidable competitor in RIM. Still, it appears that Microsoft's hoping to piggyback mobile sales on the runaway success of Windows 7."

A Glimmering of Hope?
Technology may come to Microsoft's aid in the smartphone market.

WinPho7 is for smartphones, and interest in smartphones is growing -- comScore said 49.1 million people in the U.S. owned smartphones between March and May. That was 8.1 percent higher than in the previous three months.

However, smartphones still constitute only a fraction of the overall mobile phone market. That situation is not likely to change until at least 2015, when there's enough bandwidth to sharply cut the cost of accessing data wirelessly, Rob Enderle, principal analyst at the Enderle Group, pointed out.

"Microsoft has until then to get its act together before it's at serious risk of being locked out of the market," Enderle told TechNewsWorld. "After that, things get much more difficult."

All This and Tablets, Too
Microsoft is lagging behind in another crucial area of the mobile market -- tablets.

The iPad is a runaway best seller, and already at least one Android tablet has popped into public view -- the Augen GenTouch78, a $150 device spotted in a Kmart circular earlier this week.

Meanwhile, Motorola (NYSE: MOT) and several other manufacturers have announced plans to offer Android tablets. Some who had initially thrown their weight behind tablets running Windows 7, such as Asus, have switched to Android instead. Perhaps worst of all, Microsoft has apparently shelved plans for its own tablet running Windows 7, the Courier.

"Business users are natural targets for a Windows-based device," Pund-IT's King pointed out. "Despite Apple's (Nasdaq: AAPL) claims, I haven't yet seen many truly business-ready iPad apps appear."

Microsoft should begin targeting the tablet market, Enderle said.

"They either need to allow Windows Phone 7 to move to tablets, develop a new operating system for the platform or find a better way to deal with hardware shortcomings," Enderle said.

"Microsoft is trying to force Windows 7 into this segment, and the hardware and software just isn't right to compete with the iPad and similar products," he said.

Stay tuned for Part 2.