Over the past several weeks, Microsoft (MSFT 0.91%) has been at the center of a significant flurry of activity, in terms of both the company's actions and the reactions it has inspired. A broad series of new products have been released, and have received glowing support from fans and scathing reviews from critics. As the company attempts to re-emerge as a leader in technology, it faces significant challenges from Apple (AAPL +0.50%), Google (GOOG +0.67%), and its own damaged reputation. Ultimately, the company is taking those steps necessary to become relevant again and it belongs on your radar -- if not in your portfolio.
The Microsoft spring
After nearly a decade of stable, plodding performance that can be described as adequate, but certainly not inspiring, Microsoft seems to have woken back up. The recent release of Windows 8 was used as a centerpiece to introduce the Surface tablet, the new Windows smartphone (Nokia's (NYSE: NOK) Lumia 920), Xbox Music service, expanded Xbox video, and other offerings. Microsoft has returned to the fray on all fronts, making clear that it has no intention of fading quietly into obscurity.
The warmest reception has probably come for the Surface tablet, though it is not without its detractors as well. While it does not run a full version of Windows -- that will be available on the Surface Pro, which is set to be released early next year -- Microsoft's answer to the tablet is the closest thing to a PC replacement that we've seen. Where iPad and Nexus 7 fans each extol the functionality of their devices, with the most obvious distinction being the Apple or Android ecosystem, these are essentially consumption tools. Prior to the Surface, tablets were useful for web surfing, video, reading books, and other non-productive pursuits, but when you wanted to create something -- including an app for your tablet -- you needed a PC.
The Surface attempts to give users all of the convenience of a tablet, while still providing them with the ability to run the Microsoft Office suite of applications. This should allow the device to truly serve as a bridge between PCs and tablets, taking it to a whole new level. Critics point out that it requires a significant amount of memory to load the OS, as well as the fact that until the Surface Pro is released, almost Windows is not Windows.
Dialing for dollars
Also showing promise has been the Windows smartphone. Initial indications show that the Lumia 920 has been selling better than expected, registering shortages in many locations. A recent headline on The Next Web stated that the smartphone was "all but sold out on both Amazon.com (NASDAQ: AMZN), and AT&T's website, indicating potentially high demand." The other side of this argument asserts that the reason for the shortage is low supply, not high demand. Leaving aside the fact that this tactic is good enough for Apple, it is hard to imagine it properly applies to Amazon. I'm willing to accept that a given store has a limited supply of Lumias, but the entirety of Amazon?
While Microsoft remains dramatically behind both Apple and Google in terms of global market share in smartphones, the new Lumia line is helping. According to research firm IDC, in the third quarter, Microsoft's market share tick up to 2.4%, well behind Apple at 16.9% and Android at 68.1%. These initial results were sufficient to earn Nokia an upgrade from Ilkka Rauvola of Danske Bank Markets. As a part of the upgrade, the analyst upped his sales projections from 23 million to 36 million units. He stated: "It's just the beginning of the sales ramp. This hasn't even started in all countries yet. We don't have complete visibility."
Finally, the announcement of a partnership between Nokia and China Mobile is certain to significantly bolster Windows smartphone sales. The alliance is one of the most coveted among the major players in the space. Nokia's win here should give Microsoft a much needed dose of credibility.
Deciphering the news
In the midst of all of the back and forth, ups and downs, and positives and qualifications, it is hard to really know how to position oneself. Despite all of the potential positives, the stock is down nearly 10% in the last month and nearly 12.5% over the last three months. Is this a clear vote by the market that the steps taken by Microsoft are simply insufficient to change perception? Or is the stock's price action a skeptical misunderstanding of what is happening at Microsoft?
Perhaps even harder than rising to the top of the heap in technology is changing perception after one has been on top and fallen from grace. Where Microsoft was once a tech titan, it has been displaced by Apple and Google. As the company attempts to reinvent itself, it must not only offer competitive products, it must convince consumers to include it in the conversation. This means that patience is critical. The need for that patience is understood by Steve Ballmer and company. As shareholders remain on the fence, the stock has struggled and created an attractive buying opportunity. If you remain unconvinced, the stock at least belongs on your radar -- but at current levels, I believe an allocation is warranted.
