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Windows 10 Could Lift Microsoft

Summary

  • Microsoft has missed out on having an operating system that can co-exist between devices, something that Apple and Google are further ahead on.
  • Windows 10 solves a lot of those problems.
  • Microsoft management’s attitude to embrace competition rather than fight it, combined with a great release in Windows 10, will help the company in the long run.

By Scott Tzu, Technology

If there’s been one area where Microsoft (NASDAQ:MSFT) has been having its lunch eaten by Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL), it’s in operating systems. Google and Apple have mastered the art of working operating systems that are seamless between PC and phone, both of which with decent (Google) to great (Apple) aesthetics.

Aesthetics. This was the challenge that the company tried to address with Windows 8. Instead, it alienated its users, especially those who found Windows 7 to finally be a nice upgrade. Jokes were made about how Microsoft gets it right only every OTHER operating system.

Those jokes may have actually held true once again, as its basically unanimous that Microsoft has produced a fantastic release with Windows 10. Google “Windows 10 Reviews” and read through some of the results from heavyweights like Engadget, C|Net and others.

We concur. Microsoft had to get it right with Windows 10 and we think they did.

This is bullish for the company, and it came from the forward thinking at the company to begin with. The new management at Microsoft realizes the dramatic shift in the OS market (Apple is steadily gaining market share but still has plenty of room to go) and they’re embracing the change by innovating their own product. “Let your game do the talking,” they say.

The open source days are upon us and we really agree with Microsoft’s decision to release the OS for free. We thought this was a spectacular decision. Like with business, when you have something good to show off, you want to talk about it and show it off. Getting Windows 10 out for free works with that logic. We think Microsoft knew how good Windows 10 was going to be and that it was a wise choice releasing it to the masses for free.

If you recall, The quote from the OS Chief was “we think of Windows as a service.” This decision making conveniently comes a couple quarters after Apple made a similar move when it launched its Mavericks operating system to the public.

What does Windows 10 mean for Microsoft?

  • Based on reviews we’ve read, we think it will slow the bleed in OS market share to other companies
  • It will give PC users a nice reminder that Microsoft can also focus on the GUI side of an operating system
  • It’ll help gain market share with video game users and mobile users with versions for Xbox and mobile

What does it mean to the PC market?

  • Semiconductor stocks like Micron (NASDAQ:MU) that rely on PC sales could see a bump in sales
  • Accessory makers like Hewlett Packard (NYSE:HPQ) could get a bump (not just from PC sales but from accessory sales, as well)

We had previously written about the “age of Windows 10” here. We saw this coming change when we said,

This is all a part of the bigger evolution picture for Microsoft. A new browser, in a new operating system, is a move in the right direction. We can’t wait to see Windows 10 (mostly just to get rid of Windows 8). In an earlier piece, we wrote about why Windows 8 failed to impress consumers and how the “tile” format of the OS works best on tablets only. We critiqued that the company should focus more on a Windows 7-like environment for those using their desktops when they produce the next version of Windows, which is now considered long overdue. It’s now looking like Windows 10 will combine both Windows 7 and 8 elements with a fresh new browser.

To reiterate what we’ve said in the past, we think a continued successful launch of Windows 10 could do big things for those invested in Microsoft. The synergy between Windows 10 and Xbox could help create a better all around user experience for those with more than one Microsoft product in their lives.

This all plays into the ecosystem picture and now that Microsoft has an operating system in favor with its users, we see Windows 10 as potentially being a key that will unlock doors for Microsoft in the quarters ahead.

As we’ve said in the past, we think MSFT could be a nice addition to any long-term focused dividend portfolio, especially with Windows 10 as a tailwind. The company’s modest 15x forward P/E and impeccable balance sheet ($96 billion cash vs. $35 billion debt) make it a solid foundational piece for any large cap portfolio. We think the company’s cash position lends itself to MSFT continuing to strategically deploy capital to its shareholders, in addition to the company’s forward yield of 2.7%.

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