Microsoft Corporation (NASDAQ:MSFT) has taken a lot of heat over the changes it made to its new personal computer (PC) operating system (OS) Windows 8. However, the new software is selling at a decent clip and, more importantly, blurring the line between PC and mobile devices.
Changing its Stripes
Microsoft Corporation (NASDAQ:MSFT) is best known for its Windows PC operating system. Although it has other notable businesses, Windows is a key product and the one on which the company was founded. Every new release makes headlines.
When it first came out, Windows 8 was criticized over the changes Microsoft made, including removing the “start” button to which so many customers had grown accustomed. The company plans to alleviate some of these concerns with updates.
However, what many people don’t fully appreciate is the way in which Windows 8 blurs the line between PC and mobile device. Windows 8 looks and acts like the company’s mobile and tablet operating systems, including touch functionality. It is creating an ecosystem in which Windows users can grow comfortable across multiple devices.
A Multi-Pronged Effort
The company’s partnership with Nokia Corporation (ADR) (NYSE:NOK) on the Lumia phone is an equally important part of this effort. After Nokia gave up its own mobile OS, it partnered with Microsoft, receiving money up front and agreeing to design its much anticipated smart phone using Windows Mobile.
The best part about the Lumia, however, is how important the product is for Nokia. Since this is a make or break product, Nokia is going to put 110% behind this phone. Microsoft just needed a good showcase for its mobile OS. Good OS reviews should give Microsoft an in with companies looking to diversify away from a near-total reliance on Google Inc (NASDAQ:GOOG)‘s Android mobile OS.
Nokia, for its part, has a lot on its plate right now. It’s facing more competition in its emerging market stronghold and is trying to take on the industry giants in developed markets with a new phone. Sales have fallen in each of the last two years and in 2012 were around 40% below their 2007 peak. All but the most aggressive investors would be better off looking elsewhere for now.
Tablets
The look and feel of Windows 8 is also cloned on Microsoft Corporation (NASDAQ:MSFT)’s Surface tablet offering. That said, trying to take on Apple Inc. (NASDAQ:AAPL)‘s iPad and Samsung’s Galaxy tablet offering is a sure loser for Microsoft in the near term. Sales figures prove that out. However, Microsoft doesn’t need to be the industry giant to have a real business in the tablet space.
In fact, if it can get a respectable product out the door that looks and feels just like using a Windows based PC, it will have a material market to sell into. What Microsoft Corporation (NASDAQ:MSFT) is creating, then, seems allot like what Apple has to offer.
An Ecosystem
Apple Inc. (NASDAQ:AAPL) has seen that once a customer starts to use an Apple product, like an iPhone, iPad, or iPod, he or she gravitates toward other Apple products. Since Windows hadn’t really had a coherent product collection like Apple, it wasn’t that hard to get Windows customers to make the switch. Microsoft Corporation (NASDAQ:MSFT) is now putting up a fight.
It may take time for its mobile OS and tablet to catch on, but they start to create a comfortable world in which Windows customers can live. That’s not going to unseat Apple Inc. (NASDAQ:AAPL) or slow its growth prospects, but it may help to stave off defections and slowly build and broaden the Windows brand.
Which One?
Interestingly, Apple Inc. (NASDAQ:AAPL) and Microsoft are both seeing solid sales trends. Apple’s growth rates are far more exciting than Microsoft’s, but its top line is more likely to slow from its recent heady pace while Microsoft Corporation (NASDAQ:MSFT)’s top line will probably just keep rolling along at a healthy, though not spectacular, clip. That’s part of the reason why Apple shares are off from recent highs while Microsoft shares are trending higher.
Apple’s big problem is that it either needs to find a big source of new customers or create the next revolutionary product. If it can’t do at least one of the two, sales growth will be harder to achieve. If Microsoft’s sales muddle slowly higher, however, investors are likely to be pleased. The shares have advanced of late, but still remain within a decade long trading range. Look for a break above $40.
After coming down from recent highs, Apple Inc. (NASDAQ:AAPL) shares actually yield slightly more than Microsoft, though both sport yields in the mid-2% range.
Apple Inc. (NASDAQ:AAPL) is most appropriate for growth minded investors who think the company still has some “magic” left to share with the world. Microsoft, meanwhile, is a decent choice for those seeking a well-diversified, but slow growing, tech giant.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft.
The article Windows 8 Is Doing Just Fine originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
