Is a Tablet-Only Windows 7 on the Horizon?

If 2009 was the year of the netbook, 2010 can be called the year of tablet PCs. The launch of Apple's iPad broke open the market, with technology companies of all sizes jumping on to the tablet bandwagon. From Acer to Asus, Samsung to LG, Sony to HP, everyone is readying an iPad rival.

As the tablet market gets more crowded each day with more and more devices, the time is ripe for Microsoft (Nasdaq: MSFT  ) to unveil a new operating system exclusively for tablets.

The software giant launched Windows Phone 7 in October, but it also needs to release a tablet version to exploit the ever-growing tablet market.

Currently, Microsoft offers tablet manufacturers only the version of Windows 7 that's also being used in PCs, laptops, and netbooks.

Credit Suisse says it expects Microsoft to release a version of Windows 7 specific to the tablet form factor in the first half of 2011, and that it will be based on the Windows 7 kernel but with a new, tablet-optimized user interface (UI).

"Specifically, we anticipate 'Windows 7 Tablet Edition' to be more touch- and tablet-friendly with a new UI 'shell' (based on Windows Media Center and/or Metro as opposed to the traditional Taskbar interface of the currently default Explorer.exe) on top of existing Windows 7 'piping,'" analyst Philip Winslow wrote in a recent note to clients.

Winslow believes that much as it did with Windows Phone 7, Microsoft will implement hardware requirements for tablet manufacturers (e.g., capacitive touch with four or more contact points and an accelerometer) to instill confidence in application developers that their apps will run as intended on all Windows 7 Tablet Edition devices.

"Along these lines, we expect Microsoft to eventually ship Windows with Windows Marketplace as the company's version of Apple's App Store," Winslow said.

Microsoft's strategy has generally been to integrate same kind of chips to work for its operating systems. For instance, Windows Phone 7 works closely integrated with Qualcomm chips. And now Microsoft is said to integrate Intel's Oak Trail chips for its tablet-version OS. Intel is developing Oak Trail chips specifically for netbooks and tablets.

This kind of strategy has both ups and downs. Microsoft's approach will take away the onus of integrating the OS with the chip from the OEMs. This bodes well for low-cost assemblers who do not possess the expertise to effect such integration.

However, such an arrangement dissuades differentiation and ushers in a PC-like culture whereby most of the devices are similar in configuration with minor differences in memory, design, and screen.

On the other hand, this type of arrangement will allow OEMs to lower the prices of their devices, compared with Android devices, which are little bit expensive as the cost of integration is pushed toward the OEMs. Meanwhile, Apple has its own A4 chip for iPads.

Winslow expects that Intel's Oak Trail chip will improve power consumption on Windows 7 tablets, potentially extending battery life on Windows 7-based devices from about five hours to about 7.5 hours. The market-leading iPad boasts a battery life of about nine to 10 hours, and Samsung's Galaxy Tab claims a battery life of about seven hours.

Winslow sees Oak Trail as critical to the medium-term success of Windows 7 tablets, as he expects that more users would be willing to trade off the greater processing power and app ecosystem of a Wintel tablet with improved touch functionality for a slightly shorter battery life than what the iPad or an Android tablet can offer.

But it won't be easy for Microsoft to launch an exclusive tablet operating system and grab market share right away, as Apple's iOS and Google's Android have already captured a major chunk of the market, while Hewlett-Packard is developing its own webOS operating system, courtesy of its acquisition of Palm.

However, with the tablet market growing, Microsoft still has a chance, and it should get a decent tablet OS up and running by the middle of 2011 to avoid losing any momentum gained from Windows Phone 7.

Meanwhile, studies by several market-research firms indicate that tablets are eating into sales of the PC, which has been Microsoft's forte. About 90% of the PCs around the world are run on the company's windows operating system. Technology research firm Gartner said personal-computer sales worldwide were on track to set a new record in 2010 but that Apple's iPad is taking a bite out of the sector.

Gartner revised its forecast for worldwide PC sales for 2010 to a total of 352.4 million units, up 14.3% over last year, but down from the previous forecast it made in September of 17.9% growth for the year. The company now expects worldwide PC sales in 2011 to touch 409 million units, up 15.9% over 2010 but down from its earlier forecast of 18.1% growth in 2011. Gartner added that over the long term, media tablets are expected to displace around 10% of PC units by 2014.

Meanwhile, FBR Capital Markets expects 70 million tablets to be sold next year, with 40 million of those coming from Apple alone. FBR also estimates that every 2.5 tablets sold negates the sale of one PC.

Jefferies, meanwhile, expects tablet shipments in 2011 appear to be shifting more toward 50 million units.

"We remain more bullish than market expectations regarding tablet adoption due to tablets' superior browsing experience and form factor," analyst Peter Misek wrote in a note to clients.

If the above predictions prove true, Microsoft's tablet operating system could come in handy for the Redmond company if its revenue from PCs takes a hit in the future.

"Much of Wall Street remains concerned about the tablet's impact on Microsoft's Windows franchise," Winslow said. "However, we believe that Microsoft will have a more meaningful position in tablets in 2011 than the market appreciates based on a more tablet-friendly UI and improved power consumption, which we believe will serve as a catalyst for the stock."

 

International Business Times, The Global Business News Leader

Google, Intel, and Microsoft are Motley Fool Inside Value choices. Google is a Motley Fool Rule Breakers selection. Apple is a Motley Fool Stock Advisor recommendation. The Fool owns shares of and has bought calls on Intel. Motley Fool Options has recommended buying calls on Intel. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple, Google, Microsoft, and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. This article has been lightly edited. The Motley Fool has a disclosure policy.


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