Where Will Microsoft's Growth Come From?

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When it comes to Microsoft's (Nasdaq: MSFT  ) Windows Phone 7, skeptics abound.

"Kudos to Microsoft for not missing the critical holiday season, but it's already pretty late in the game," my Foolish colleague Anders Bylund wrote recently. "I realize that Microsoft is walking a fine line between rushing out unfinished products and missing the window of opportunity to get a foothold in the market."

Production sloth isn't entirely Microsoft's fault, of course. Partner apathy is also to blame. Hewlett-Packard (NYSE: HPQ  ) said it wouldn't offer smartphones based on Mr. Softy's new mobile OS.

LG, Samsung, and Toshiba are all expected to have Windows Phone 7 handsets available by the 2010 holiday season, trade magazine InformationWeek reports.

Regardless, sales may fail to live up to even modest expectations. Gartner analysts project that the new phones will give Mr. Softy's mobile OS market share a small bump in next year, from 4.7% currently to 5.2%, before falling back to 3.9% by 2014, according to InformationWeek.

I'm with the skeptics on this one. As good as Windows Phone 7 might be -- and we'll have to see it to know -- there's no denying that Mr. Softy has already failed with a feature-phone OS and has a steep hill to climb to catch Apple (Nasdaq: AAPL  ) , Google (Nasdaq: GOOG  ) , and Research In Motion (Nasdaq: RIMM  ) , collectively the U.S. smartphone leaders, in the high end of the market.

And that's a problem. Microsoft has undeniably awesome franchises in Windows and the Office suite, but it lacks new growth catalysts for powering the 12% annual earnings growth the Street is expecting to see over the next several years. Windows Phone 7 doesn't appear to be that sort of catalyst.

Now it's your turn to weigh in. Do you think Windows Phone 7 will be a growth catalyst for Mr. Softy? Please vote in the poll below, and then leave a comment to explain your thinking. And if you're interested in Microsoft, add it to your Foolish watch list.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Apple is a Motley Fool Stock Advisor selection. Google is a Motley Fool Rule Breakers recommendation. Google and Microsoft are Motley Fool Inside Value picks. Motley Fool Options has recommended subscribers open a diagonal call position in Microsoft. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He had stock and options positions in Apple and a stock position in Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. The Motley Fool owns shares of Apple, Google, and Microsoft and is also on Twitter as @TheMotleyFool. The Fool’s disclosure policy just heard the dinner bell ring. Bye!

Read/Post Comments (9) | Recommend This Article (19)

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 October 09, 2010, at 4:39 PM, golfstan0 wrote:

    Yes, mobile 7 will compete, have you heard advertising? Go softie!!!!!!!

  • Report this Comment On October 09, 2010, at 5:15 PM, evrymov wrote:

    M-Soft only has a stranglehold on the desktop computer world OS because of lethal business practices, not because its OS was/is really any good. This is not so for the cellphone world to which it is a late-comer. Lest I sound like just another good is an OS that cannot be used until you first purchase firewall, virus scannners, and "security suites" to be able to use it? Given the more limited memory space and processing power of a typical cellphone, who wants to give up resources for all those background programs, which also must be constantly updated? I sure don't. Iphone is not just pretty and feature loaded, it is also pretty secure, right from the box, ditto for Android (linux) based phones.

    I agree that MS is a pretty formidable competitor but they have no real clout here, and little to offer that might be better. For example, listen to a radio show like the Kim Komando show: people call in with Windows problems and 99% of her responses (unofficial count) are to buy some other program to make it work right or fix some issue, often a security fix. Other than the Macs the average consumer has few viable alternatives, and let's face it, the "app" world for the desktop/laptop world really is a Windows world. This is just not so for the cellphone world and big Softy is way too far behind here.

  • Report this Comment On October 09, 2010, at 7:43 PM, Henry3Dogg wrote:

    "Production sloth isn't entirely Microsoft's fault, of course. Partner apathy is also to blame."

    Attitude problem. Nobody owes MS a free lunch.

    If they want in, they have to succeed, not just to try.

  • Report this Comment On October 09, 2010, at 8:27 PM, erniecitrus wrote:

    Tim, regardless of what I personally think of your article, the fact that you use the 'clever' handle, Mr Softy, no less than 4 times makes your knowledgeable journalism appears as if it was written by a disrespectful bozo.

  • Report this Comment On October 09, 2010, at 8:44 PM, TMFMileHigh wrote:


    >>the fact that you use the 'clever' handle, Mr Softy, no less than 4 times makes your knowledgeable journalism appears as if it was written by a disrespectful bozo

    No disrespect was intended, but you're right. That's lazy writing in a short article. I'll endeavor to do better for you and other readers.

    Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On October 09, 2010, at 10:38 PM, jrmart wrote:

    When Apple introduced the first IPHONE, Steve Ballmer stated that Apple would be lucky if they sold only a few thousand units. At that time, I was using a fairly new HP smart phone running Windows Mobile. After looking at the new IPHONE, I immediately trashed my HP smart phone and bought the IPHONE. I have since traded in my old IPHONE for a new IPHONE4, just like millions of other very satisfied users. I don't blame HP for not wanting to run Windows Mobile 7 on any of their new smart phones. When will Steve Ballmer and Microsoft realize that Apple products are easy to use, work great, use state of the art components and people just love them. By the way, I also got rid of all my PCs and have bought lots of new Apple products that are also simple to use and work great with software updates that occur in minutes instead of hours. If Microsoft wants to grow again, they need to get a CEO with real vision instead of a clown that yells out loud while bouncing all over the stage while introducing JOKE ME TOO products like the ZUNE.

  • Report this Comment On October 10, 2010, at 2:24 AM, StockNewb wrote:

    Whenever someone is playing catch-up they lose, look at investor's who play catch the profits they lose money.

    I think Microsoft needs to deploy there money, while they still have it to developing new and exciting that apple does not have. Games that are 3D, Holographic phones etc, they have to think outside the box. They will continue this apathetic performance and mayhap slowly die out if they dont.

    Disclaimer here I LOVE Apple and would invest in them in a heart beat if I could afford the $400 price tag and id like a dividend too, because i dont think they can keep explosive growth for to much longer.

  • Report this Comment On October 10, 2010, at 4:36 PM, nickcraze wrote:

    No offense foolish fellas, mainly the writer of this article. But do you remember a new platform entering the stage named Android not to long ago? It started with one phone the G1, and took almost a year for the barage of new phones to come in and now it looks like it's about to eat Apples cake. In the Mobile world it's not the same as in the desktop/server platform. All Microsoft need is to be great with advertising and entice the public to want the platform. There's no such thing as late to the party, phones are constantly changed often and Microsoft is leveraging all their platforms on windows Phone. Xbox Live, Zune and Office. I am sure most people would prefer a complete platform(unlike android) then something taped together.

  • Report this Comment On October 11, 2010, at 12:21 AM, alexkhan2000 wrote:

    @ nickcraze

    Android is about to eat Apple's cake? Apple is earning nearly 40% of *all* profits in the entire cellphone market (not just smartphones) and more than Nokia, Samsung, LG, Sony/Ericsson, and Motorola combined and you say Android is eating Apple's cake? Do you do any research before investing? Google isn't getting a penny for all the Android sales although they're "expecting" all the Android adoption to add another $1.5 billion in *revenues* by sometime in 2012. Hmmm... Apple *earns* that much from the iPhone per quarter right now.

    As for Microsoft, what are they bringing to the mobile table with WP7? Ability to scroll through Excel spreadsheets and view Power Point presentations on their phones? So Microsoft is going to leverage *that* to sell their phones that the largest US wireless carrier recently dismissed? The new COO and next CEO-in-line at Verizon recently said: "Microsoft is not at the forefront of our mind." Zune? LOL You've got to be kidding. X-Box? It'll be years before Microsoft hopes to recoup all the billions they've thrown into it.

    Sure, the generic copycat Asian device manufacturers like Samsung, LG, HTC, etc. will offer the WP7 phones since they like to throw whatever on the wall and see what sticks. But how about Nokia? How about HP? How about RIM? Why aren't they aboard with WP7? Or Android? Why? Because they'd rather be like Apple...

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