Microsoft Corporation (MSFT): Why, Mr. Gates, Will Windows 8 Dominate The Market?

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Microsoft Corporation (NASDAQ:MSFT)It’s been a long time since I actually found myself laughing out loud while reading the news, but that’s exactly what happened (more than once) when I stumbled across an article in The Guardian yesterday. The article was entitled “Bill Gates Predicts iPad And Android Users Will Switch To PC Tablets” and went on to describe how Gates believes that the future of mobile computing will be shaped by Microsoft Corporation (NASDAQ:MSFT). According to the article, Gates predicts that future mobile electronic device sales will predominantly consist of PC-tablet hybrids, namely his company’s Surface and Surface Pro.

In the midst of a few more chuckles, some eye rolling, and never-ending head shaking, I managed to finish the article. Does Gates really believe that his company’s Windows 8 tablets will suddenly take off in popularity and surpass the public’s current preference for Androids and iPads? Gates described Windows 8 as “revolutionary” because it’s Microsoft Corporation (NASDAQ:MSFT)’s attempt at furthering the evolution of computing by combining the more desirable features of tablets and smartphones with those of the traditional PC. While that surely sounds like an intelligent concept, however vague it might be, the fact still stands that from a sales perspective, Windows-powered phones and tablets just aren’t as popular or versatile as Google Inc (NASDAQ:GOOG)’s Android devices or Apple Inc. (NASDAQ:AAPL)’s iDevices.

Top Tablet Operating Systems, Shipments, and Market Share, 1Q2013 (Shipments in Millions)
Vendor 1Q13 Unit Shipments 1Q13 Market Share 1Q12 Unit Shipments 1Q12 Market Share Year-Over-Year Growth
Android 27.8 56.5% 8.0 39.4% 247.5%
iOS 19.5 39.6% 11.8 58.1% 65.3%
Windows 1.6 3.3% 0.2 1.0% 700.0%
Windows RT 0.2 0.4% 0.0 N/A N/A
Other 0.1 0.2% 0.2 1.0% -50.0%
Total 49.2 100.0% 20.3 100.0% 142.4%
Source: IDC Worldwide Tablet Tracker, May 1, 2013

Why, Mr. Gates, will Windows 8 dominate the market?

The article went on to quote Gates as describing users of iPads as frustrated because “they can’t type, they can’t create documents, they don’t have Office there.” It appears that Gates hasn’t had the pleasure of using one of his competitors’ devices, however, because that statement couldn’t be further from the truth. You can connect any number of Bluetooth keyboards to give you that old familiar physical feel, and many tablets will also recognize a Bluetooth mouse. Some larger tablets even have standard USB ports into which an ordinary desktop keyboard can be plugged. As for creating documents and using Office, there are countless apps (including free ones) that allow users to view, create, and edit Microsoft Word and Excel documents.

Even taking into consideration the fact that Microsoft Corporation (NASDAQ:MSFT)’s tablet device is a new competitor in the market, I don’t have very high hopes for it and I don’t think I’ll be relying on Gates’ psychic abilities when it comes to building my stock portfolio. Even though Microsoft Corporation (NASDAQ:MSFT)’s stock price is up nearly 24% YTD, I’m not going to run out and grab some shares simply because Gates predicts that his company’s product will soon take over the market and revolutionize the industry. If anything, I’d be much more likely to invest my money in Google Inc (NASDAQ:GOOG) or Apple Inc. (NASDAQ:AAPL), since those companies have demonstrated a consistent ability to remain on the cutting edge, and both have revolutionized the industry in their own ways.

The numbers, please

Google Inc (NASDAQ:GOOG)’s stock price is up slightly more than 22% YTD, and Apple Inc. (NASDAQ:AAPL)’s is down nearly 13% YTD. However, we all know that those figures don’t tell the whole story. Being a long-term type of investor, I focus more on a stock’s performance over at least five years, plus consider the company’s ability to remain innovative and adapt to a changing landscape. Looking at five-year performance figures, Microsoft Corporation (NASDAQ:MSFT) is up about 12.5%, Google Inc (NASDAQ:GOOG) is up about 48.7%, and Apple is up almost 156%. Examining those numbers alongside more current values like price to earnings ratio and earnings per share figures, Microsoft isn’t nearly as impressive as Google or Apple Inc. (NASDAQ:AAPL). Microsoft’s PE is 16.96, Google Inc (NASDAQ:GOOG)’s is 25.84, and Apple’s is 11.08. But, what might be more indicative is EPS, which is $1.94, $33.59, and $41.89 for Microsoft Corporation (NASDAQ:MSFT), Google, and Apple, respectively.

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