There's no second guessing in my mind; CEO Satya Nadella needs to get tablet and mobile market share in order for Microsoft (MSFT, Financial) to find success in 2014. And I think it's very possible.
Last week's Microsoft news included Satya Nadella getting his executive cabinet the way he wants it, and news of Steve Ballmer apparently pushing for the Nokia (NOK) acquisition when Bill Gates (Trades, Portfolio) and Satya Nadella initially opposed it. Interestingly enough, it was also reported that Alan Mulally didn't get the CEO job because he refused to formally interview. That worked out well for me, as I'm long Ford (F, Financial) and want Mulally there - and I didn't mind Nadella getting the role at Microsoft.
Microsoft is at the upper end of its trading echelon that it's been in for the last couple of months. The company has traded up 35% in the last 12 months, but has really shown no action in the last three months - or, since 2014 started.
There's no doubt that two of Microsoft's biggest opportunities - similar to Intel (INTC) - continue to be both mobile and tablet. As Microsoft continues to try and work Windows 8 across its "ecosystem" - phone, Xbox, mobile, PC - it looks to gain market share and monetize accordingly.
As a former owner of an iPad and current owner of Microsoft's (MSFT, Financial) Surface 2, I can start to see why the tablet market is gravitating a bit towards Microsoft. The product itself is actually different enough from iPad to entice people. Windows 8 has its faults, and the tablet is a bit heavier than the iPad, but the ability to have two windows open at once and the case/keyboard set the Surface apart. For the first time ever, when we saw iOS 7, we actually saw Apple (AAPL) take a step to make its iOS GUI look a bit more like the competitors, when it had previously blazed that trail by itself.
Ewan Spence from Forbes was the latest to write a fantastic review of what's capable on the Surface 2. I recommend reading the entire review here:
Not everyone attending a conference needs to have the ability to create content, for many staying in touch through email, social networks, and browsing the web will be enough when attending an event. For those people 'the tablet' will be more than enough for their needs. For me, I need something more than the consumption and light editing of my online presence. I also need something that is portable, easy to carry, has a battery life that gets me through the day, and that I can trust to do what I need it to do.
The Surface Pro 2 is all that and more. Given the other hardware choices open to me, given the software I can use, given what I need to achieve at an event, the Surface Pro 2 is one of the best devices I can choose for covering a conference.
Tablet purchases seem to be slowing, but Surface still seemingly has a chance for growth as the market pulls back.
Last month’s news report include the following points:
- Citing "slowing consumer purchases" amid high penetration rates in mature markets, IDC now forecasts tablet shipments will grow 19.4% in 2014 (to 260.9M units), down from a prior estimate of 22% (271M units).
- Tablet growth steadily slowed in 2014: Shipments rose an estimated 142% in Q1, but just 28% in Q4. IDC puts full-year growth at 52%.
- Two silver linings for high-end/enterprise leader Apple - 33.8% Q4 share): 1) ASPs are only expected to drop 3.6% in 2014, after falling 14.6% in 2013, as more consumers embrace "higher-end devices." 2) Commercial buyers are expected to account for 14% of shipments, up from 11% in 2013.
- IDC also thinks Windows tablets, struggling to gain a strong consumer foothold, will take over a quarter of the commercial segment thanks to rising convertible adoption.
- The revised forecast still puts tablet sales within striking distance of eclipsing PC sales: IDC expects PC shipments to drop 6% this year to 295.9M. Smartphone shipments are expected to grow 19% to 1.2B.
The data is certainly going to be interesting going through 2014. Not only is it going to be interesting to see how tablets sell versus PCs, but it's going to matter for companies like Microsoft, Intel, and Hewlett-Packard (HPQ) - all of whom need the PC market to have already bottomed in order to get back to PC growth. Aside from Lenovo, Apple is the only company that seems to be able to buck the trend of the slow PC market.
Additionally, I think that the Windows 8 ecosystem could see more of a push on mobile as well. As emerging markets start to catch up with the smartphone trend, there are developing markets that continue to materialize worldwide for both mobile - and, eventually, tablet.
Most recently in the news was Microsoft signing up nine brand new OEM partners to help produce Windows phones, primarily for emerging markets - one of the same markets that BlackBerry (BBRY) is gunning for.
Microsoft recently announced nine new OEM partners who are going to produce Windows OS phones: Foxconn, Gioneer, Lava, Lenovo, LG, Longcheer, JSR, Karbonn and ZTE. At the same time it announced support for a broader range of Snapdragon processors; support for all major cellular technologies including LTE; dual SIM capability; and, expansion of its application library to 245,000 applications.
If Windows OS only holds share in world markets, it should be in over 50 million smartphones in 2014. With share gains that number could pass 70 million as I see it.
Microsoft is getting serious about mobile, and it will have an impact. The Windows OS phones are excellent devices based on my experience with a Lumia 1020. By signing on more OEMs and making it possible for those OEMs to offer Windows OS phones at a broad range of price points by supporting dual SIM and more processors, Microsoft is likely to show strong share gains in 2014.
Microsoft is a lot closer than its ever been to being a bit further towards the front of the adoption curve with Surface 2. They have a chance here; if they continue to market the Surface 2 correctly and continue with upgrades commensurate with its growth, this could be an area where Apple got off to the lead, but Microsoft catches up.
The same goes for mobile. Aside from producing mobile devices for emerging markets, it markets and sells the Windows phone for users like myself, who still haven't made the switch from Android and iOS.
With the company's rock solid dividend yield and sound fundamentals, Microsoft has the chance to once again be a growth stock if executes mobile and tablet.
