What Does 2013 Hold For Microsoft?

Yasir 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 been a dominant force in software for decades, with its Windows operating system for PCs now expanding to mobile phones and tablets. Even though Microsoft is still the world's biggest software company, doubts are arising over Microsoft's future, due to its weak performance after the release of its latest OS, Windows 8. While many believe that Microsoft will not be able to compete in the "after PC" or "PC Plus" market, the company believes that it is off to a great start in 2013, and asserts that there are quite a lot of things to be optimistic about in the future.

Apple (NASDAQ: AAPL) is seen as Microsoft's biggest competitor at all levels. Its Macbooks compete with Windows based PCs; its iPads compete with the new Windows tablets; and its iPhone competes with Windows-based smartphones. 

While many believe that Apple's sales figures for the year have been far better than Microsoft, a lot of people have overlooked the fact that Microsoft is still the leading force in software for PCs, even though the PC market is slowly fading away with the arrival of tablets and powerful smartphones.

In order to analyse Microsoft's current position, we need to look at three major segments; Windows-based smartphones, Windows 8 covertibles/hybrids/ultrabooks from Microsoft's hardware partners, and Microsoft's entry into hardware with its Surface tablets.

Nokia's Lumia Line and Microsoft's partnership with Huawei

After the release of Nokia's (NYSE: NOK) first Lumia line, Windows Phone's future looked dead, as many critics believed that Nokia had rushed to release the devices too quickly after forging its partnership with Microsoft. While Apple and Android dominated the market for smartphones, Nokia's Lumia line was left far behind.

After the release of WP8, Nokia has released its flagship device, the Lumia 920. Many believe that the smartphone will shine in 2013, as it has the potential to compete with the latest Android smartphones and with the iPhone 5. Even though the hardware is not top-notch, the Lumia 920, along with other WP8 devices, might just be able to capture greater market share this year.

Microsoft also has other partners for Windows Phone 8, including Samsung, but Nokia's WP8 phones look the sharpest. Microsoft's recent partnership with Chinese vendor, Huawei, is also something to look forward to. The China-based telecommunications giant revealed that it will be launching Windows-based smartphones in Africa, with locally customized app stores. Not only is this good news for Huawei, but Microsoft will also look to benefit with growth opportunities in the African region. Statistics show that the African smartphons industry is the fastest-growing in the world, with growth expected till 2017.

New Windows 8 Devices

The new Windows 8 touch-based devices have not performed as well as expected with people wondering about the future of these latest Windows 8 devices. Windows 8 is meant for touch, and integrating touchscreens into laptops just won't work. Microsoft's hardware partners, including HP, Lenovo, Acer, and Dell, are still unsure of what people actually want with Windows 8.

It is certain that people don't want touchscreen laptops. Using a laptop with a touch-screen just doesn't work out. However, many people believe that people want hybrids, convertibles, and tablets, which offer something more. All the models of iPad have received generally positive reviews, but it looks like that people want something more with a tablet -- just what Microsoft is aiming to fulfill.

Tami Reller, Microsoft's CFO, recently stated that Microsoft is heading in the right direction. She said that the demand for touch is very high, and that Microsoft, along with its partners, will fill out the gaps between laptops and tablets. Apart from that, Reller also said that touchscreens are the key to Windows 8's success, and that customers are interested in touchscreens in laptops, all-in-one PCs, and tablets.

The new Windows 8 touch screen hybrids include HP's Envy X2 convertible, Dell's XPS 12, Acer's Iconia tabs and Asus's Vivo tabs. Touchscreen ultrabooks have also been released including HP's touchsmart Ultrabook. These touch-screen laptops will focus on the customers who still want powerful laptops, along with touch-screens, in order to get a full experience of Windows 8. However, 2013 is the year for hybrids and convertibles, and we'll have to wait and see how these devices perform in the tablet and PC market. 

Microsoft's entry into hardware 

Microsoft's Surface tablet was one of the most awaited tablets of the year, but it didn't receive the reception that many people were hoping for. After the announcement of the Surface tablet, it seemed that this was what people needed to move away from Apple's iPad and cheaper Android tablets. One of the main reasons for this was that many were expecting the Surface to replace their laptops. 

The Surface RT was nowhere near a full PC, except that it featured Microsoft Office. The RT version of the Surface is still solid, but sales didn't go as well as expected. After people found out that the Surface couldn't run traditional Windows apps, a lot of these people started to move away from the tablet. The ones who bought the tablet got it for the Windows 8 "metro" or "modern" UI, along with Microsoft's touch-sensitive cover that doubled as a keyboard.

The recently released Surface Pro has already received a number of negative reviews. The Pro version of the tablet is what people were looking for, but for the $800-plus price tag, a Core i5 tablet with a laptop-like experience seems too expensive. While the Surface Pro is a very good device, it couldn't function as a tablet due to the lower battery life of Intel's power-draining Core i5 processor. Furthermore, it's almost impossible to use the Surface Pro as a laptop on your actual lap.

Another reason why the Surface Pro received negative reviews is that Microsoft's partners are outperforming it. Companies like HP, Dell and especially Lenovo have released some fantastic devices, based on the Microsoft Surface idea, but with a more laptop-like experience. Most of the hybrids feature keyboard docks, which double as an additional battery, and their hinges make sure that users can use the device as a laptop on their laps.

Final Verdict

The Surface line might turn out to be a wrong step taken by Microsoft, or it could prove a step towards growth by the end of 2013 if sales start to rise. Even if the Surface turns out to be a mistake, Microsoft still has a lot of things to be optimistic about. When Windows 8 was released, it didn't perform well at all, but now Microsoft claims that Windows 8 is on par with Windows 7's record license sales.

It's only been 3 months or so since the release of Windows 8, and the company has already sold over 60 million licenses. Tami Reller still believes that this is just the beginning of Windows 8 with severe growth expected in 2013. Also, 2013 looks like the year for Windows 8 hybrids, which might finally knock out the iPad and Android tablets. There are mixed opinions on Microsoft's future at the moment, but 2013 will certainly be an important year for the company going forward.

yasirrfc has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple 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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