The Great Windows Freakout
Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Microsoft (NASDAQ: MSFT) has little to celebrate this Christmas. Less than 10% of Microsoft's customer base has upgraded to the newest incarnation of Windows since its release in October. Analysts and Pundits alike are beginning to wonder if Redmond hasn't made an existential mistake.
I'm talking, of course, about Windows Vista. But then, as ZDNet pointed out, I could be talking about every new Windows release since 1995: XP, Vista, Windows 7 or Windows 8.
To quote InfoWorld's list of Tech's All-Time 25 Flops (2007):
“What if you threw a party for the world's most revolutionary operating system and nobody came? Then again, by the time Windows Vista actually shipped, the "revolution" looked more like a failed coup.”
Or just ask CNR.com (2002):
“"I've not had a single client that wanted to upgrade from any previous version to XP, especially from Windows 2000 to Windows XP. There's just so little difference...”
Hand wringing over the latest version of the most popular Operating System (OS) in the world is a Wall Street tradition.
Slow Adoption?
Just this morning, ZDNet's Adrian Kingsley-Hughes reported that:
“Data collected during the week ending Nov. 18 -- three weeks after the operating system's retail release -- puts Windows 8 usage at just 1.19 percent, behind not only Windows XP, Vista, and Windows 7, but also Mac OS X 10.8, 10.7, and 10.6, and even the underdog of operating systems, Linux.”
The minimum time to evaluate a new Windows operating system is two years. Not three weeks. Two years. Case in point: Windows Vista doubled Windows XP sales in the first month, only for sales to fall off a cliff in the months afterward. Analysts declared Vista to be DOA. Yet, by January 2009, Forrester Research had revealed that 1/3rd of all North American and European corporations had started deploying Windows Vista, with a total adoption rate of 200 million users and climbing.
So much for the predictive power of early adopter rates.
Everyone Still The Same
The drastic pre-fiscal cliff sell-off has wiped out roughly 20% of the market value of global household names like Apple (NASDAQ: AAPL). Apple is the world's most valuable brand name, with over $120 billion in cash, long and short term securities, much of which held in U.S. Treasuries. Despite this, Apple is currently trading with the same P/E (less net cash) as oil supermajors often valued solely by their current assets.
But has anything actually changed? Nope.
Nine out of ten computers on the planet still use a Microsoft OS. Consumers are still tearing one another limb from limb for the newest iPad. (IBM web analytics found that the iPad accounted for 10% of all online shopping.) 139.4 million adults in the U.S. visited stores and retail websites between Thursday-Sunday. Black Friday sales increased 20.7% year-over-year, even though according to independent surveys by both Pricegrabber.com and CouponCabin, most shoppers are waiting to do their spending on Cyber Monday.
Foolish Conclusion
Microsoft is currently trading at the low end of its historical range. At 14.5, the company's P/E is roughly par with the S&P500 average, while EPS has increased like clockwork every year for the past decade. Revenues have increased over the same period. Share count has rapidly decreased over the same period due, as Redmond repurchased $84 billion in stock. Microsoft is a solid company who's positives continue to outweigh the negatives.
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