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Could Windows 8 Pain Be Apple’s Biggest Gain?

Windows 8 Operating System is Coming!

Microsoft (NASDAQ: MSFT) will be shipping its latest and greatest operating system Windows later this year (in October).  I’ve been following many of the tech blogs and other news sites that have been evaluating and reviewing Windows 8 and Windows RT (the tablet version).  Let’s just say the reviews I’ve read have sentiment ranging from the new OS being a catastrophe all the way to it making Vista look like it was actually a success. It’s been about one good review for every 25 to 30 negative ones.

Windows 8 is a HUGE gamble for Microsoft as they have dramatically changed the user interface from that used in a typical OS like today’s Windows 7 or the Mac operating system.   Billions of users have been using these current interface paradigms​ for decades.  Now, with Windows 8 Metro there are a lot of new interfaces and actions to learn and get accustomed to.  It is a radical makeover to say the least.  Their “Metro” interface consists of “tiles” and seems designed for tablets more than desktops.  Many reviewers have said it forces more clicking and slows productivity.

Windows 8 Pain Could be Apple’s Gain

But hey let’s face it, typically the public at large fears change.  It’s just human nature.  They do not want to put forth the effort to learn something new when what they had was productive and working just fine.  Microsoft runs the risk that users could decide now is the best time to take a cold hard look at trading over to an Apple (NASDAQ: AAPL) laptop or desktop.  The learning curve to move to Apple’s operating system from Windows is a very low hurdle especially compared to Windows 8.

In fact, the biggest catalyst in the pipeline for Apple may not even be the iPhone but instead Windows 8.  If the reviews ring true with consumers and enterprise they both may reject the new OS.  This could create the mother of all “switch to Mac” catalysts.  If Apple were to take advantage of this and capture 25% or perhaps 50% plus of the entire PC market over the next three to five years this would become the biggest driver of revenue and earnings for them. 

In business sometimes you are only as good as your competitors.  Technology changes fast and at one point Nokia was the cellphone champ but they got disrupted by Apple & Android.  Sometimes disruption already exists and just needs a competitor to miss a beat so it can be exploited.  Apple is in the pole position here with a solid hardware and software platform that is ready, willing and able to take all those unhappy PC users and convert them over to happy Mac users. 

I think based on what I have been reading, the risk to Microsoft is very real.  I have personally sold all my holdings in Microsoft as my conviction is high that Windows 8 will indeed alienate consumers.  The protest will be heard in the form of lackluster Window sales and users switching to Mac’s at an even more rapid pace than they are now.  Yes Windows 8 could be that bad.

Collateral Damage Everywhere

However there may be collateral damage to other companies like Intel (NASDAQ: INTC).  Apple is going to pick up sales in the consumer and enterprise PC markets at an accelerating pace.  The current crop of Apple PC’s are using Intel chips so for some of those losses on Windows sales,  Intel will pick up sales on the Apple side of the ledger.  There is a risk to Intel if Apple starts using their own ARM based CPU’s in any desktop or laptops going forward.  Additionally this won’t be a one to one zero sum game.  Apple will pick up a portion of the Windows 8 defectors but what is likely to happen is that a large percentage of Windows users simply won’t upgrade until their OS is phased out.  Windows phase outs are as follows:

  • Windows XP: 4/2014
  • Windows Vista: 4/2017
  • Windows 7: 1/2020

So based on these end of life dates the majority of users may simply just hold on and keep using the OS they have until it is no longer supported.  Even today 43.6% of Windows users are still on XP.  This will create incredible drag on Microsoft, Intel as well as all the PC manufacturers and down line component makers such as Seagate, Nvidia, Western Digital, etc

Winners and Losers

A lot hinges on the success of Windows 8 not just for Microsoft but for the whole PC ecosystem.  If it fails as Vista did there will be many bodies on the battlefield but Apple will likely emerge as one of the biggest beneficiaries of Microsoft’s Windows 8 gamble.  I’m holding my Intel position for now but as the Windows 8 October launch approaches I will either liquidate it or hedge it.  I have added to Apple as it has many catalysts including the potentially game changing one discussed in this article.  Microsoft has an attractive valation right now but it could be a value trap if Windows 8 is the disaster most seem to be predicting.

 

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