Psst, Apple -- Watch Out for Microsoft

It's been two years since Apple (Nasdaq: AAPL  ) overtook Microsoft (Nasdaq: MSFT  ) to become the planet's most valuable technology company in terms of market capitalization.

It will probably remain that way for some time, but now isn't the time to sell Mr. Softy short. A new projection by tech watcher IDC is pretty ominous. The firm's forecast is for Microsoft's mobile operating system to overtake the iPhone in market share by 2016. Yes, that Microsoft. Yes, that Apple iOS.

Whoa -- Megan Landry alert
Microsoft seems like a comparative small fry at the moment.

The smartphone race appears to have just two sprinters on the track. Google (Nasdaq: GOOG  ) is leading the way with its open-source Android operating system. Apple is there at a distant but comfortable second, with iOS cornering the high-end market.

But the other platforms are usually dismissed in passing. Research In Motion (Nasdaq: RIMM  ) is fading as it prepares BBM 10 as a potential savior of its floundering BlackBerry business. Microsoft is even further behind than BlackBerry -- but IDC doesn't see it staying that way for long.

Let's take a look at the firm's market-share projections between now and 2016.

Mobile OS

2012

2016

Android 61.0% 52.9%
Windows 5.2% 19.2%
iOS 20.5% 19.0%
BlackBerry 6.0% 5.9%
Others 7.2% 3.0%

Source: IDC Worldwide Quarterly Mobile Phone Tracker.

You probably didn't see that coming. Can Windows Phone really eat into both Google and Apple's share?

Absolutely. The reason your TV has been flooded with ads for Nokia's (NYSE: NOK  ) Lumia 900 smartphone is that cash-rich Microsoft isn't afraid to throw money around to get noticed. Microsoft reportedly agreed to pay Nokia billions to get the Finnish handset maker to abandon the struggling Symbian platform and promote Microsoft's updated mobile operating system. 

Microsoft can afford to do that. Why go for a buyback when you can buy your way back? A struggling RIM can't keep up with that approach, so it's been resorting to layoffs and rolling the dice on BBM 10.

Apple's still on top
Apple fans will argue that market share is irrelevant. It doesn't matter that there may be three times as many Android smartphones shipping as iPhones this year. Because it's an open-source platform, it's not cashing in the way that Apple is on its own proprietary device, the thinking goes. The wireless-carrier subsidies on Android devices go to Samsung, Motorola, and the other handset manufacturers that have hopped on the popular operating system. Apple, on the other hand, receives the juicy iPhone subsidies. And if things go well, Nokia may make more money on Windows Phone than Microsoft itself.

The challenge for Apple is that losing market share can be a problem. Developers will want to make apps that support the more popular operating systems, and Microsoft has even made things easier for coders by giving them more generous terms than they get through Apple's App Store.

Then again, developers know they're getting plenty of bang for the iOS buck, since an App Store application will also work on iPad tablets and iPod digital-media players that don't factor into IDC's smartphone forecast.

Pie for supper
The good news for Apple is that it won't be making less money if its market share shrinks from 20.5% to 19% in four years as IDC expects. The pie itself is getting bigger. IDC sees the smartphone market growing at a 12.7% compounded annual growth rate between now and 2016. No, iPhone sales won't climb as quickly, hence the market-share decline, but its annual growth rate would still be a reasonable 10.9%.

The only shocker in the growth-rate data, then, is that the forecast calls for RIM to grow the shipment of its BlackBerry OS devices at an annualized rate of 12.1%. Does anyone really believe RIM will be growing faster than Apple in the future?

I didn't think so.

Either way, Microsoft needs to be respected here. The one-two punch of Windows 8 and the reinvigorated mobile operating system will make the world's largest software company a bigger player in tablets and smartphones in the future. Apple can continue to grow and reward its shareholders in this environment, but it can't take its eyes off the rearview mirror, because Mr. Softy is closing in.

Apple jacks
The next trillion-dollar revolution will be in mobile, but the best investing play isn't necessarily Apple. If you want to cash in on the upcoming trend, a new report will get you up to speed. It's as free as this article, but it won't last forever, so check it out now.

The Motley Fool owns shares of Apple, Google. and Microsoft. Motley Fool newsletter services have recommended buying shares of Apple, Microsoft, and Google and creating bull call spread positions in Microsoft and Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He owns no shares in any of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


Read/Post Comments (6) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 09, 2012, at 3:53 PM, bsimpsen wrote:

    Recall that Gartner, Forrester, and IDC and also predicted that the iPad would be pushed aside by Android.

  • Report this Comment On June 09, 2012, at 4:27 PM, btblomberg67 wrote:

    The Fool writing on the predictions of FOOLS. Microsoft may produce a small resurgence. but there is nothing in Redmond that will bring them all the way back. They will be left looking out their Windows while the other kids play. The only one that need to fear is the Android platform as the cracks are growing in Googles playground and the Motorola mobility purchase will just make them grow faster.

  • Report this Comment On June 09, 2012, at 5:02 PM, roadrash5155 wrote:

    MSFT in 1999 = $28

    MSFT in 2012 = $28

  • Report this Comment On June 09, 2012, at 5:49 PM, henrystar wrote:

    What an empty piece.

  • Report this Comment On June 09, 2012, at 5:56 PM, daveshouston wrote:

    Microsoft was once a technology leader but that was in the last century (literally).

    Their entire strategy is based on trying to hold on to their huge customer base of Windows PC users while, at the same time, trying to migrate them to Windows 8, Metro smartphones, and metro tablets.

    They are so incredibly late to the party. I'm sure they'll be able to buy there way in to some success, but it is very hard to visualize them as a major player in the future.

  • Report this Comment On June 09, 2012, at 6:09 PM, jimbotomy wrote:

    IDC's been predicting Windows Mobile will overtake iOS for them. It gets them good press because nobody ever bothers to go back to check on their predictions and note the obvious: they don't know what they're talking about.

    In 2010, they predicted that by 2014, iOS would be fourth in market share, behind Symbian, Android and Blackberry, respectively, and also that iOS market share would slip by 25%. True, that prediction still has two years to go, but does anyone want to put chips on Symbian and Blackberry now?

    In 2011, they predicted that by 2015, Windows Phone would surpass iOS, capturing 21% of the market while iOS shrinks to about 15%. No sign of this happening yet.

    IDC reports can be summarized with "Windows Phone will surpass iOS four years from now." Bet you that next year they'll say it happens by 2017.

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