Microsoft has expressed surprise at Sendo's decision to withdraw from its Smartphone programme, but has vowed to carry on its development within the market.
"We're baffled by the decision but don't see it impacting our success in the smartphone market," said Anne Marie Duffy, UK wireless and mobility manager at Microsoft.
"Two years down the line of working with Sendo, the fact that this alleged issue with open versus shared software has been raised has taken us by surprise."
Duffy told vnunet.com that Sendo's software was ready for release, and that this was not a contributory factor.
Sendo has been developing the Z100 'Stinger' smartphone with Microsoft and has missed several launch deadlines. All work on the device has now been abandoned, and Sendo has ruled out bringing out a Symbian version on the same hardware.
"The Z100 will not now be coming to market," said Ron Schaeffer, head of product strategy and planning for Sendo.
"The main attraction of the Nokia product was being able to secure a source code licence so that we can customise the product to suit others."
But Duffy said that Microsoft took issue with the "customisation argument".
"Orange has a fully customised platform with no problems," she explained. "Sendo already had access to source code for the Smartphone operating system. Under the terms of the agreement a full set of APIs was made available."
Sendo ruled out both hardware and software problems as a factor in its decision, but declined to elaborate for unspecified legal reasons.
The announcement leaves Microsoft with only one major mobile phone manufacturer, Samsung, developing for the Smartphone platform. However, Samsung has been hedging its bets by developing an open source smartphone with Symbian.
Microsoft owns just under five per cent of Sendo, which was set up in 1999 by ex-Philips engineers. There are no plans to sell its stake, but Microsoft restated its position that software is its main focus.
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