Tablets Come of Age
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Last week, the big news of the tech world was Microsoft's (NASDAQ: MSFT) launch of Windows 8, the latest version of its flagship operating system. While Windows 7 was essentially an incremental upgrade after the disastrous Vista, Windows 8 signals a radical shift from the company that's claimed the mantel from IBM for conservative, business computing.
Microsoft's website for Windows 8 touts a line of new tablet-based computers, including its own Surface. It's a radical departure from the company's previous marketing, geared toward desktops and laptops.
Microsoft's entry to the tablet market isn't actually new, however. The company has been touting tablets since the early '90s, but they never managed to get more than a niche following, mainly in the medical field. Tablets just seemed like a solution in search of a problem.
That is, until Apple (NASDAQ: AAPL) released the iPad. It quickly dominated the market, changing tablets overnight from a geeky curiosity to a must-have toy. Apple figured that most people consume more content on their devices than they produce, and most computers sold to consumers were just too complicated for them to use.
As of this writing, Apple's stock was trading at over $600 per share with a market cap of $567.28 billion. This is higher than Microsoft's market cap of $237.43 billion. Microsoft posted a healthy profit $16.98 billion, though it pales in comparison to Apple's performance.
With the iPad and the other tablets that followed, people could surf the Web, check their Facebook messages, watch movies, play games and even catch up on some emails without having to become IT people in their own homes.
Apple's success has obviously spooked Microsoft, since its longtime rival did what Microsoft had tried and failed for years to do: make tablets mainstream. Even though Apple "missed earnings expectations," as many financial sites pointed out, the company posted a profit of $25.9 billion, and most companies would kill for the profit of $8.8 billion it posted last quarter. Apple couldn't possibly keep up its meteoric growth forever, and what investors are seeing is likely a regression to the mean. Apple's just settling into a stable growth rate.
Mike Gancarz, author of Unix and the Linux Philosophy (which I highly recommend, even if you're not a programmer or computer person), might call tablets a 90 percent solution, in that it does 90 percent of people on the Internet actually want to do: namely consume content. It was the other 10 percent tech journalists and technical users who scoffed at the iPad.
They're also partially right. Anything that requires a lot of typing or number crunching is best left to conventional computers. Tablets, however, are encroaching on even these tasks. Need to bang out a long email or blog post. Just pair your tablet with a Bluetooth keyboard.
The tablet revolution has also been good to Google (NASDAQ: GOOG). Other than Apple and Microsoft, most other tablets are powered by its Android operating system. The company posted a profit of $9.37 billion last year.
Amazon (NASDAQ: AMZN) has also edged it in the tablet space with its Kindle Fire line of tablets, which Jeff Bezos recently admitted the company sells at cost. Amazon is banking on its vast content library, and the strategy seems to have worked. The Kindle Fire is the second most popular tablet apart from the iPad, although a distant second 7 million Kindles shipped versus Apple's approximately 84 million iPads. The introduction of the iPad mini, a similarly-sized model, might entice people who would buy a Kindle instead. Amazon has brought in $862 million last year. On ther other hand, the company posted a loss of $274 million last quarter.
The real winner might be ARM Holdings (NASDAQ: ARMH). The company's chips power nearly all the major tablets sold today, including the ones Microsoft is promoting. The company posted a profit of $175 million last year, with sales of $764 million, with a market cap of $14.55 billion. ARM is able to punch above its weight by farming out the manufacturing to other companies, keeping its costs down. Its cost of goods sold was only $43 million, or roughly 5 percent of its sales.
But will Microsoft be able to dominate the tablet market the way it did the PC industry for so long? According the the magic 8-ball, the outlook is hazy. Sure, lots of businesses will probably buy these tablets simply because no one ever got fired for buying Microsoft, but the same strategy might not work for home users. Apple and Android tablets can surf the Web and run apps as well as Microsoft. On the other hand, Microsoft's Word, Excel and Powerpoint remain the gold standard for productivity software, for better or for worse. Home users might actually want to take work home once in a while, and that might mean working on Windows laptops.
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David Delony has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, ARM Holdings, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Amazon.com, ARM Holdings, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.