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The world’s largest software maker Microsoft Corp. (MSFT - Analyst Report) announced that it is teaming up with Chinese telecom giant Huawei to release a low-cost Windows Phone 8 in Africa. Microsoft expects the phone to strengthen its position in the smartphone market in Africa.

The new Phone called the Huawei 4Afrika Windows Phone has a 4-inch screen, 480 x 800 display, dual-core 1.2 GHz Snapdragon processor, front- and rear-facing cameras, and 4GB of internal storage. It will come preloaded with select applications designed by African developers for local consumers. The phone is priced at $150 and will be initially available in Angola, Egypt, Ivory Coast, Kenya, Morocco, Nigeria and South Africa.

This new Windows Phone is in fact a part of the Microsoft 4Afrika Initiative. Microsoft’s initiative is aimed at bringing tens of millions of smart devices among the African youth, upgrading the skills of 100,000 members of the current workforce and helping 100,000 graduates to hone their employability skills so it can place 75% of them (low-cost labor for Microsoft).

Africa is one of the world’s fastest growing smartphone markets. According to the GSM Association, smartphone sales in Africa will grow 40% each year until 2017. Microsoft estimates that smartphones in Africa represent only 10% of total phones used across the continent as the majority of users still rely on feature phones. So in view of the fact that the country is still significantly under-penetrated in terms of smartphone usage, we think that Microsoft has ample expansion opportunities in Africa.

Microsoft is not the only company eyeing Africa. Samsung, the largest seller of smartphones and cell phones, intends to sell its less expensive range of Galaxy smartphones in Africa and other emerging markets.

The global smartphone market is dominated by Google’s Android and Apple’s (AAPL - Analyst Report) iOS devices. In 2012, the two operating systems together represented about 88% of global smartphone market share, while all others, including Windows Phone, were at about 12%. On the brighter side, Microsoft’s partnership with Nokia Corp. (NOK - Analyst Report) helped the company to increase its Lumia Windows smartphones sales to 4.4 million in the fourth quarter of 2012, up from 2.9 million in the third quarter.

We believe that Microsoft’s focus on one of the world’s fastest-growing smartphone markets will help the company to build on the momentum it recently gained through its partnership with Nokia.

Just like other companies with PC market exposure, Microsoft is also seeing revenue pressure. The company is making all efforts to fight the downturn caused by the sluggish economy. Although Microsoft’s smartphone market share is still relatively small, the company is well positioned for growth in Africa, which has the potential to generate an additional several billion dollars a year in revenues.

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