Microsoft Corporation's Mobile Future Is Looking Up

Like it or not, after closing the mammoth deal for Nokia's devices and services unit in late April, Microsoft (NASDAQ: MSFT  ) dove headlong into the mobile computing manufacturing market. Taking on the likes of Apple (NASDAQ: AAPL  ) and Google (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) in what amounts to their own backyards – smartphone and tablets in particular – is heady stuff.

To date, those lamenting Microsoft's decision to go all in with mobile have a lot of ammunition. According to research firm IDC, Microsoft ended Q1 of this year with a paltry 2.7% share of the smartphone OS market. The new-ish Windows Phone OS appears to have addressed many of the concerns of its predecessor, but eating away at industry-leading Android OS and iOS is no easy chore. But don't throw in the mobile towel just yet, Microsoft fans. If Gartner's latest projections prove accurate, Microsoft's mobile ambitions are about to get interesting.

A long, tough road
It was always going to take time to make a dent in Google's dominant 81.1% smartphone OS market share, not to mention Apple's 15.2% piece of the pie, as of the end of 2014's Q1. Former Microsoft Chief Steve Ballmer is on record bemoaning his late entry into mobile, and new CEO Satya Nadella and team have paid the price.

Though Microsoft saw incremental gains in adoption of its Windows Phone OS each of the past few years, what minor wins it claimed have grown stagnant, and actually declined from Q1 2013's 3.2%, to this year's 2.7%. That flat to downward trend hardly instills confidence. And even a year later , the $900 million write-off relating to Microsoft's failed Surface RT tablet still stings.

But as Microsoft has made clear the past few months with new products and its willingness to travel roads once thought to be off-limits, it's time to look to the future, not bemoan the missteps of the past.

Onward and upward
Nadella can't take all the credit for the recent introduction of Office 365 for iOS users, the new faux tablet Surface Pro 3, or a tweaked version of an Android smartphone, those had been in the works for some time. The new Azure cloud-based supercomputer, however, is all Nadella. The common theme among the new initiatives is that they are all examples of the new Microsoft.

While Nadella didn't exactly give Microsoft's deal to buy Nokia's devices and services unit his ringing endorsement, it won't prevent him from exploring new ways to utilize those assets. A rumored smartwatch which, coincidentally enough, is supposedly scheduled for release in Oct., the same time as Apple's iWatch, is another opportunity for Microsoft to make a splash in a cutting-edge market using its newfound manufacturing capabilities.

The new devices are great, but its cloud technologies , big data, and growing its mobile presence beyond in addition to hardware that Nadella sees Microsoft heading. And if the next few years go as Gartner expects, Nadella and team are on the right track.

All things mobile
In addition to confirming that the decline in PC sales will ease this year and next, tablet sales are expected to jump nearly 25% in 2014, to 256.3 million units. Mobile phone sales should top 1.86 million this year, with an estimated 66% of those being smartphones. Gartner goes on to suggest that the impetus behind the growth in mobile phones will be bigger screens and lower price points. Both attributes that Microsoft is already able to compete with Android's bevy of phone alternatives. Apple? Not so much, at least until the rumored iPhone 6 with its purported larger screen becomes available.

This is the year, Gartner's research indicates, that Microsoft Phone begins its ascent. By year-end, Microsoft Phone will have earned 4% of the OS market. So what, you ask? By 2018, so says Gartner, that 4% will have jumped to 10%. Keep in mind, as of Q1 2014, iOS's piece of the smartphone OS pie had dropped for the third straight year, to 15.2%. According to Gartner and IDC, not only is it possible that Microsoft passes Apple in the battle for smartphone OS market share, it's likely.

Final Foolish thoughts
Cutting-edge products including its tablet-laptop Surface Pro 3, a souped up smartwatch, and cloud supercomputer, have all contributed to the sense that Nadella and team are moving in the right direction. If Gartner's predictions for Windows Phone turn out to be anywhere close, before long you can add owning the world's number two smartphone OS to Microsoft's growing list of wins. The really good news? The shift in mobile power will take a few years, and that means investors who haven't gotten on board with Microsoft yet, still have time.

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  • Report this Comment On July 08, 2014, at 3:29 AM, kwright62 wrote:

    The new operating system for Windows phone makes for a very productive work tool and has more than enough flash to sell to younger customers.

    Agree that MSFT mobile products will do very well.

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