Will Microsoft be Over by 2017?

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According to technology research and advisory firm Gartner, Microsoft (MSFT) may be on the brink of obsolescence as demand is rapidly shifting away from traditional desktops to laptops and further to tablets and smartphones. 

Microsoft was the undisputed leader in computing operating systems (:OS), controlling almost 90% market share. It’s OS has, however, been losing ground to Google (GOOG) and Apple (AAPL) for quite some time as these companies continue to rule the roost in mobile.

According to Gartner, worldwide shipments of smartphones and tablets may reach 1.9 billion units and 197 million units, respectively in 2013. Further, by 2017 smartphone units may touch 2.12 billion, with tablet units going up to 467 million. 

Further, Gartner predicts that traditional PC shipments will continue to decline. Shipments may fall 7.6% in 2013 to 315 million units, down from 341 million in 2012. By 2017, it may go down further to 271 million. The rise in popularity of Android-based smart devices is expected to further aggravate the decline. By 2017, Gartner expects tablets and smartphones may outperform traditional PCs.  

Gartner also believes that Android emerged as the leading OS with 22.5% market share on the basis of the 497.1 million units it shipped in 2012. Windows, iOS, Research In Motion’s (BBRY) Blackberry OS and others trailed behind. Android will continue its dominance and may reach 1.5 billion device shipments, followed by Windows and iOS, which may ship 570.9 million and 504.1 million units, respectively by 2017. 

Microsoft has fallen behind as its revamped mobile OS has entered a very competitive market, dominated by Android and iOS. It is also battling the slump in the PC market caused by the sluggish economy.

Microsoft’s Surface tablet is still lagging its competitors’. Its partnership with Finnish handset major, Nokia is yet to reap benefits as the latter’s Lumia range of smartphones lack the popularity enjoyed by Apple and Samsung devices. Microsoft needs to strategize in order to regain its lost position in PCs and grow in the smartphone segment.

We are positive on Microsoft as it is one of the best positioned software vendors, given its wide range of products, emerging markets strength, continued technology deployment at data centers and growth in cloud computing. Also, we believe that Microsoft’s current investments are supported by its strong balance sheet and expect these to drive the next growth phase, improving prospects of market share gains.

We believe that there is no need to panic and it is a matter of time before Microsoft bounces back on the strength of its new products and technologies.

Microsoft reported revenues, excluding deferrals, of $21.46 billion in the second quarter of fiscal 2013, up 34.0% sequentially and 2.7% from last year, in line with our estimates. All except the Entertainment & Devices segment grew both sequentially and from the year-ago quarter.

Microsoft has a Zacks Rank #3 (Hold).

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