It’s Time to End the Windows RT Experiment

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Microsoft (NASDAQ: MSFT) launched Windows RT over nine months ago, and its time on the market has shown that the OS is unnecessary.

This variation of Windows 8 runs on ARM processors, instead of the x86 processors made by AMD and Intel (NASDAQ: INTC). Despite the popularity of ARM (NASDAQ: ARMH) technology in mobile devices, RT tablet shipments have remained tiny relative to Windows 8 tablet shipments.

According to research firm IDC, Windows RT shipped on just 0.2 million tablets in the first quarter. In comparison, 1.6 million Windows 8 tablets shipped worldwide. The shipment ratio in the second quarter is worse: According to IDC, 0.2 million Windows RT tablets and 1.8 million Windows 8 tablets shipped worldwide.

While Windows RT accounted for about 10% of total Windows tablets shipped in Q2, its contribution is trending down, and there is nothing on the horizon that could really reverse that trend. Furthermore, Microsoft can probably convert those RT shipments into Windows 8 tablet shipments, because the two OSes have a lot of common features.

ARM monopoly hedge

The strategic benefit of Windows RT is that it covers the possibility that ARM will continue to dominate mobile.

ARM chips are popular in mobile because they use relatively little power. Apple iOS devices and the majority of devices running Google Android use ARM processors. In Q2, these two OSes accounted for over 95% of tablets and over 92% of smartphones shipped worldwide.

Furthermore, ARM is not standing still in its efforts to rule the mobile computing market. The company recently added 64-bit support to its architecture -- a huge development that greatly increases the amount of memory the processor can handle. ARM is also quickly ramping up to protect its mobile share by going on the offensive, with plans to expand into desktops and servers.

In order for Microsoft to compete with ARM-powered iOS and Android devices in mobile, it needs Windows devices with similar battery life and hardware capability. Windows RT solves that problem by running on ARM. If x86 processors never become popular in mobile, Microsoft would have RT in its back pocket.

However, thus far Microsoft's tablet shipment numbers have proven that consumers do purchase x86 Windows 8 tablets. Furthermore, Intel continues to make significant progress in lowering the power consumption of its CPUs.

The company will be releasing new, low-power Core processors later this year, which don't require a power-hungry fan to stay cool. In addition, Intel will be launching Silvermont, a new architecture for Atom, which could enable tablets priced below $200. Most importantly, Intel CEO Krzanich plans to put the same level of focus in mobile as the company has for desktops, which should increase the rate of the company's mobile development.

Regardless, Windows 8 tablets have already proven more popular than RT tablets, so protecting against an ARM monopoly seems unnecessary.

A weaker variation

In addition, most mobile device users don’t care about internal hardware; thye just focus on available programs/apps. In this area, RT is clearly more limited.

Windows RT has a desktop environment, but it is incompatible with legacy Windows programs and can only run apps from the Windows Store. On the other hand, Windows 8 can run both legacy Windows programs and apps from the Windows Store.

This is a big handicap for RT, because the number of apps available in Windows Store is dwarfed by the number of apps available for iOS and Android. Windows Store passed 100,000 apps in July, but the App Store has over 900,000 apps, and Google Play has more than 1 million.

A direct store-to-store battle is hard to win, because app developers target the most popular platforms: Android and iOS. Thus, legacy Windows compatibility is crucial for Windows tablets, because it drastically boosts the number of apps that the tablets can run. Android and iOS have the lead in mobile apps, but Windows has a ton of legacy desktop programs.

Overall, there is no need for Windows RT; it doesn't really provide anything for Microsoft. Windows 8 tablets are much more popular than RT tablets and can run legacy Windows programs. Moreover, Windows RT cost Microsoft almost a billion dollars in its earnings for Q4 FY13. The company took a $900 million charge in an inventory writedown for its Surface RT tablets.

Microsoft would be better off just focusing on Windows 8, and ending its costly RT experiment.


Alvin Gonzales owns shares of Microsoft and Intel. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel 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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