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Microsoft Corporation (MSFT): Scapegoat to an Industry

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PC shipments for the first quarter of 2013 dropped 14%, with PC makers moving just over 76 million units.  The decrease is apparently the largest such drop since tracking shipments began in 1994 (according to Bloomberg).  Writing for Bloomberg, Aaron Ricadela wastes little time in identifying the company to which everyone’s fingers seem to be pointed in directing blame, to a large extent, for the decline — Microsoft Corporation (NASDAQ:MSFT), and its Windows 8 operating system.  Joining the lynching party are VG24/7MaximumPCCNBC.com, and The New York Times.  The finger pointing is itself due, in large part, to the International Data Corporation — IDC — and one of its vice presidents (Bob O’Donnell), who said “(a)t this point, unfortunately, it seems clear that the Windows 8 launch not only failed to provide a positive boost to the PC market, but appears to have slowed the market.”

Microsoft Corporation (MSFT)

And so it goes. If there is a problem, the problem must have a cause; PC sales are down, and the vast majority of PCs use one version or another of Microsoft Corporation (NASDAQ:MSFT)’s Windows operating system; the most recent iteration of the Windows OS is Windows 8, which has had trouble attracting users; therefore, the decline in PC sales is due to consumers’ dislike of Windows 8.  Q.E.D.  But let’s be fair — declines in PC shipments cannot simply be dropped at Microsoft’s door like a UPS delivery.

Apple’s contribution

The criticism of Microsoft Corporation (NASDAQ:MSFT) overlooks the fact that the technology environment has evolved significantly, and has done so not always in response to Microsoft’s prompting. Apple Inc. (NASDAQ:AAPL) has been at the leading edge of much of the tech industry’s development, particularly when it comes to consumer products.  Currently third in the U.S. PC market, Apple only has a 10% share — hardly enough to have the same sort of impact on PCs as Microsoft.  Apple does, however, excel in developing new consumer products, as well as being adept at taking existing concepts to new levels of sophistication.  iPods, iPads, iPhones, etc., have all taken the computer to new realms of consumer utility, for all intents and purposes initiating a movement away from the “traditional” desktop PC.

The transition to smaller devices (including the MacBook laptop computer – for which Apple hasn’t yet invented an i-name, apparently, even though the MacIntosh computer has morphed into the “iMac”) cannot be passed off as the introduction of simple auxiliary devices to augment the desktop PC.  Laptops, tablets and smartphones bring substantial power of their own to the table, and add something the desktop PC will likely never have:portability.

Put briefly, the market for PCs has shrunken as smaller computers bring new capabilities. Apple Inc. (NASDAQ:AAPL) isn’t the only company involved in this evolution, but it has typically led the process.  Of course, as the market shrinks, so too will the number of PCs needed to accommodate that market.

OS wars

While desktop PCs and laptops were dominant, Microsoft Corporation (NASDAQ:MSFT)’s Windows OS was dominant; Apple’s proprietary OS (currently OS X) was limited to the Apple environment.  As smaller devices have taken the stage, however, new operating systems designed to optimize full-featured performance on a smaller physical platform were developed, and Microsoft has appeared (to me, at least) to be playing catch-up rather than leading the field.  Apple Inc. (NASDAQ:AAPL)’s iOS (which I’m sure was a difficult designation to come up with) has become the standard for iPads, iPhones and iPods; but rather than seeing a burgeoning Windows presence, the last few years have seen the ascension of the Android operating system.

Android, Inc. developed the Android OS with the assistance of Google Inc (NASDAQ:GOOG), with Google ultimately buying Android Inc. Designed to operate on the small platforms provided by smartphones and tablet computers, Android quickly became a major player in the small device universe, accompanied as it was by a body of applications developed by and for Google.  Based on the Linux programming language (an open-source language with a broad base of developers), Google’s Android was able to take advantage of the essentially free access Linux offers, while at the same time retaining rights to the Android software itself, generating  income from compatibility certification and licensing fees.

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