Will Microsoft be Obsolete by 2017?

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An article on Yahoo! titled Microsoft Could Be Obsolete By 2017: Gartner Report examines the possibility of Microsoft (NASDAQ: MSFT) becoming irrelevant by 2017. It is an interesting topic--after all, ten years ago, Microsoft was so dominant that the idea would not even be worth discussing. Fast forward to the present and the PC industry is stagnant and Microsoft is battling for scraps in the rapidly growing mobile device market. Meanwhile, the iPhone and iPad are household names, and Microsoft’s rivals Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) are thriving.

Furthermore, Android’s strong presence in smartphones almost guarantees that Microsoft can only be a niche player in that market. Yes, Apple is also an obstacle, but Google’s business model with Android puts Microsoft at a big disadvantage. Android is a licensable OS, so it negates Windows Phone OS’ advantage of being licensable. In addition, Android is free and the OS has a huge lead over Windows in the number of apps and market share. Android’s global market share in the fourth quarter for smartphones was 70%. Basically, Microsoft has to overcome factors similar to those that make Windows unstoppable with the added obstacle of Android being free.

The article references a Gartner report that paints a dismal picture for desktop PCs with PC unit shipments continuing to decline and mobile device shipments continuing to surge.

<table> <tbody> <tr> <td>Device Type Unit Shipments (thousands)</td> <td>2012</td> <td>2013</td> <td>2014</td> <td>2017</td> </tr> <tr> <td>PC</td> <td>341,263</td> <td>315,229</td> <td>302,315</td> <td>271,612</td> </tr> <tr> <td>Tablet</td> <td>116,113</td> <td>197,202</td> <td>265,731</td> <td>467,951</td> </tr> <tr> <td>Mobile Phone</td> <td>1,746,176</td> <td>1,875,774</td> <td>1,949,722</td> <td>2,128,871</td> </tr> </tbody> </table>

Gartner states, “This is not a temporary trend induced by a more austere economic environment; it is a reflection of a long-term change in user behavior.”

Mobile devices are overrated

The projected decline of Microsoft into irrelevance basically hinges on the premise that mobile devices will make/have made the desktop PC obsolete and irrelevant. This is simply not the case. The main advantage of smartphones and tablets over traditional PCs is their portability. Users can easily take their smartphone or tablet outside and access the internet on the go. This has made mobile devices hugely popular.

While this is a great attribute, this does not make the desktop obsolete. On the contrary, modern desktops can use cutting edge processors and the processing power of a desktop completely outclasses a similarly priced mobile device. The hardware on a mobile device is limited by the battery and smaller form factor. This means that the chip or SoC powering the device has to be low powered with no or very little active cooling (e.g. a small fan). This is not the case for desktops so much more powerful processors are used.

For situations where portability is unnecessary or processing power is important, the PC is clearly the superior device. There are plenty of places or applications where this is in fact the case. Some quick examples are universities, office buildings, programming, graphic design, research, high end gaming, etc. Even if Microsoft never becomes relevant in mobile, the company will not become obsolete as a result.

Windows on tablets

In addition, while Microsoft might be hopeless in smartphones because of Android, Microsoft has a chance in tablets. Tablets became popular recently so the market saturation is not as high as it is with smartphones. Apple is the leading vendor in tablets, and the company only shipped 23 million iPads in the holiday quarter. In total, the number of smartphones that shipped worldwide was approximately four times the number of tablets that shipped. It is much easier to attract new customers than it is to convert a customer from Android or iOS.

Also, tablets are larger and more powerful than smartphones. Thus, Microsoft can use Windows’ millions of legacy programs in the tablet battle. Windows has been around much longer than Android and iOS and the number of programs written for it dwarfs the number of Android and iOS apps. While Windows 8 tablet adoption has been disappointing, legacy programs might be enough to negate Android’s free licensing and eventually gain Windows 8 or a later iteration a large portion of the market.

The bottom line

The emergence of smartphones and tablets does not make the desktop PC or Microsoft obsolete. Mobile devices are vastly inferior to desktops in processing power and there are plenty of applications where processing power is important. Permanent decline happens to obsolete technology, and the desktop PC is not obsolete. Also, Microsoft has a fighting chance in tablets and has a big place in servers and console gaming, which are far from being irrelevant. Even if Microsoft never becomes relevant in mobile, the company and the PC will continue to be relevant for a very long time.

Alvin Gonzales owns shares of Microsoft. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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