Instead, Microsoft will continue to focus on selling the software that runs in many devices and let the hardware vendors do the building, Ballmer said in a meeting with financial analysts in New York.
Microsoft's top executive acknowledged that Apple has attracted most of the spotlight in the smartphone market with its popular iPhone. "The consumer market mojo is with Apple and to a lesser extent with [Research In Motion's] BlackBerry," Ballmer said.
Microsoft, however, does not intend to compete with these vendors at the hardware level. "It is not our strategy to build our own phone," Ballmer said. "It's our strategy to build software that can stretch across many devices."
Ballmer said he expected price to become a leading differentiator in the smartphone market, and Apple sells a "very high-priced phone." Even though iPhones are available at a low price with a two-year service contract from wireless providers, the latter are also looking to make more money by paying less for the smartphone, Ballmer said.
Therefore, Microsoft believes it can make more money by offering Windows Mobile on low-end smartphones, as well as feature-rich models, Ballmer said. In that broader market, Google's open source Android operating system will be a competitor.
Microsoft is upbeat on future smartphone growth. While sales of mobile phones in general are likely to decrease, smartphone purchases will continue to increase, Ballmer said.
Earlier this month, Ballmer said at the Mobile World Congress in Barcelona, Spain, that Microsoft is changing the name of its mobile OS to Windows Phones. In addition, Microsoft plans to redesign its user interface, introduce an application store, and offer a content backup service in order to better compete with Apple, RIM, and Symbian, an OS used by the world's largest mobile phone maker, Nokia.
Apple's progress in the smartphone market is not the only area where it's challenging Microsoft. Ballmer said Apple in 2008 gained about a percentage in market share in the PC market.
While played down by Ballmer, the gain reflects the growing pressure Windows is under in the marketplace.
Ballmer acknowledged that Microsoft will be watching and responding to Apple's gains, which are mostly among consumers. "It's an interesting amount of market gain while not being as dramatic as some people might think," he said.
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