Microsoft and its partners such as Nokia Corporation (ADR) (NYSE:NOK) talk a lot about building a viable third mobile ecosystem, but at the rate MS is going, it’s not clear they ever get there. I’ve estimated that to be self-sustaining, a mobile ecosystem needs to have at least 100 million users. At its current rate, it would take a couple more years for Microsoft to achieve that viable ecosystem. Do Microsoft and its partners have two years?
Microsoft’s path forward
Microsoft management and investors are beginning to understand that being an integrated devices company in the Apple vein is not all that easy to achieve. I tend to discount the importance organizational structure in determining the performance of organizations, since I think quality of leadership is far more important, but Microsoft’s re-org probably will help. In any case, I certainly believe that Microsoft can become an effective integrated mobile devices company to rival Apple.
My current pessimism regarding Microsoft Corporation (NASDAQ:MSFT) has to do with a certain doggedness I see in its pursuit of the ARM platform. The impending arrival of Intel Bay Trail processors that will outperform ARM processors in computing speed and energy efficiency will make the effort pointless. There’s much added value in a Windows 8 Pro tablet packing a 64 bit Bay Trail processor that can run nearly the whole ecosystem of Windows 7 software. Such tablets will be as thin as current ARM tablets and have equivalent or better battery life.
There is a question in my mind, which I raised in my recent Intel earnings article, whether the Bay Trail family can be made as cheaply as competing ARM chips. Probably not, but this would be a secondary consideration for Microsoft, since processors aren’t the main cost drivers for tablets anyway, while the touch screens are. Microsoft badly needs a mobile device ecosystem, and the easiest way to achieve one is by bringing the current Windows ecosystem into its mobile platform. That can only be done with Intel.
Similarly Windows 8 Phone could be hosted by an Intel processors derived from Bay Trail, which should be available by the end of the year. Going all Intel would allow Microsoft Corporation (NASDAQ:MSFT) to streamline the development process for its OS and reduce costs.
Although I consider the switch to all-Intel as all but inevitable, it’s not clear when it will occur (the doggedness factor). Unfortunately, Microsoft has achieved just enough progress with Windows Phone to embolden it to continue with ARM. Microsoft could easily waste another year trying to build an ecosystem on what is for Microsoft a dead end platform.
The article A Cold Shower for Microsoft Investors originally appeared on Fool.com and is written by Mark Hibben.
Mark Hibben owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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