Buy Microsoft: The Most Overlooked Name in Tech
Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As we march ever-closer to the late October release of Windows 8 and Surface tablet, Microsoft (NASDAQ: MSFT) continues to be the most overlooked and underappreciated name in the technology sector. While the release of Nokia’s (NYSE: NOK) Lumia 920 Windows Phone was overshadowed by the rollout of Apple’s (NASDAQ: AAPL) iPhone 5 and Google’s (NASDAQ: GOOG) Motorola Razr line, the phone represents an important member of Microsoft’s product line. While Microsoft lost a significant part of its dominance over the last several years, the company is experiencing a new renaissance and is well positioned at current levels to perform.
The Smartphones Wars
While no reasonable person would sincerely suggest that as things currently stand the Windows Phone poses a legitimate threat to either the iPhone or the top phones in the Android ecosystem, the Lumia 920 is a solid device that should not be overlooked. The phone provides solid functionality and a simplicity of use that should appeal to business people. The Microsoft app options are drastically reduced from those offered by Apple and Google-based products, but when one considers the percentage of apps that are designed for productivity, rather than entertainment, the numbers are far closer. Consumers looking for streamlined functionality without all of the distractions associated with more app-heavy options should appreciate the Nokia Windows Phone 8.
Given the appeal of the Lumia 920, it is somewhat unfortunate that its release was so highly overshadowed. While the strategy employed by Microsoft and Nokia seemed sensible, the absolute hysteria that iPhone releases engender should have been avoided. The attempt to preempt the iPhone 5 release might have worked if Microsoft had a more solid footing in the market, but the story of David and Goliath is known because of its uncommon outcome: 99 times out of 100, the juggernaut crushes its opponent. Taking on Apple head-to-head on a release is taking on an army of juggernauts. Perhaps when the dust clears, or in conjunction with the Microsoft Surface release, the real appeal of the Lumia 920 will be better covered.
The Tablet Wars
Where Microsoft has a real opportunity to explode back into the top of tech is with the release of its Surface tablet in late October. While there are apps, peripherals and workarounds that can allow users to use a tablet in place of a PC for light duty, business people do not go rushing to their tablets when it is time to produce. The Microsoft Surface may be the first exception to this trend if the device delivers on everything that it has promised. For the first time, users may be able to run a full complement of programs on the device, including Microsoft Office.
In addition to the Surface, PC-makers, including Dell (NASDAQ: DELL) and Hewlett-Packard are already developing PC-tablet hybrids that will utilize Microsoft’s new operating system. The release of this wave of devices has the potential to accomplish three critical events. First, if the devices are as well received as I expect, the meaning of “tablet” itself will be forever changed. Second, the fabled “death of the PC” should be reclassified as the metamorphosis of the PC – just as occurred when the first notebooks were released. Third, as this next generation of devices become increasingly integral parts of both business and popular culture, Microsoft is likely to return to a position of dominance in the marketplace.
Under this scenario, the ability of the Lumia 920 to seamlessly integrate with the new devices could become a significant advantage. The mere existence of the phone will, therefore, have meaning and should be understood as such. It is this vision that makes Microsoft the sleeper tech stock in the market.
In addition to each of the above positives, Microsoft continues to have the ability to rely on significant revenues generated by both Windows and Office. The release of Windows 8 in late October should be a further catalyst for the company, but buying in ahead of the release is advisable. Overall, Microsoft has significant upside potential and muted expectations. The company’s long-term outlook is strong and the stock is a buy.
Know What You Own
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Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple and Google. 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.