Gartner Indicates That MSFT May Be In Some Serious Trouble

| About: Microsoft Corporation (MSFT)

I shiver whenever I find myself agreeing with anyone from the Gartner Group, but it seems I am agreeing now.

On Thursday the 4th of April 2013, Gartner came out and warned that Microsoft (NASDAQ:MSFT) faces a slide into irrelevance in the next four years unless it can make progress in the smartphone and tablet markets, this because the PC market will continue shrinking.

Displaying their talent for restating the obvious, they said a huge and disruptive shift is underway, in which more and more people will use a tablet as their main computing device.

The new report by Gartner indicated that by 2015 shipments of tablets will dwarf those of conventional PCs such as desktops and notebooks. Google's (NASDAQ:GOOG) Android and Apple's (NASDAQ:AAPL) iOS are predicted to be the huge winners in this brave new world.

Carolina Milanesi, the analyst who is behind these predictions, also said that she sees Android being installed on more than a billion devices by 2014.

More from Ms. Milanesi (emphasis mine):

A key problem for Microsoft is that it is the people who don't yet own PCs - in emerging markets such as Africa and China - who are most likely to have a smartphone and tablet as their first "computer". Milanesi says: "They're starting with a smartphone, not a PC, so when they're looking for something larger, they look at something that's a replacement smartphone experience - which is a tablet or ultramobile device. And Android or [Apple's] iOS are the two that they're looking at."

Microsoft could then face the vicious circle where developers considering which platform to develop apps for look at those with the largest user base - and that that will not be Windows. By 2017, she says, the number of devices being shipped with iOS, both iPhones and iPads, will be close to that with Windows and Windows Phone combined.

With all due respect to Ms. Milanesi, she only has half the story.

She describes external market forces which will cause turbulent times for Microsoft, but Microsoft faces other challenges as well.

Adoption of Windows 8 seems to be slow, users seem to be frustrated with the new user interface and the Windows RT brand seems to be a source of confusion to consumers and partners alike.

In addition, the company is clearly struggling in the OS (Windows 8.1), Phone (Windows Phone 8) and Tablet (Surface, Windows RT) arenas.

It's not clear that Microsoft is able to see or articulate a clear path forward out of all these challenges and in many ways, it seems to be tone deaf and sluggishness in its responses.

You can read my articles for more on that.

A lot of the aforementioned challenges that Microsoft faces can easily be mitigated.

  1. They could listen to user feedback about the start menu and the ability to boot into the desktop.
  2. They could explain what their service pack strategy is versus letting people and customers get distracted over code names (Windows Blue).
  3. They could explain to consumers formally what the heck Windows RT is.
  4. They could lower the price of the Microsoft Surface tablets to reflect reality and storage space limitations on those models.
  5. They could release a reference Surface Phone that could compete with Android and the iPhone.
  6. They could lower the pricing on Windows 8 (over $100 is too much for something people don't understand.)
  7. They could take zero dollar commissions for one year from developers in order to incentivize development on the Windows platform.

On and on it goes, things that the company could do today to fix a lot of perceived problems with the direction they are going in.

Unfortunately, it seems like Microsoft have decided on a strategy that is opaque to analysts and the general public.

As I have said before, usually when a company has these many challenges, the CEO is ultimately accountable.

The Takeaway for Investors

Microsoft is not a stable stock as some readers on this board seem to believe. Enough analysts have made some really serious predictions about Microsoft's future for investors to be cautious about this stock. Microsoft is in serious need of new leadership and an entirely new approach to dealing with potential problems of this magnitude.

If there are no serious senior leadership (read CEO) changes at the company, it's only a matter of time before the stock price begins to reflect the sentiments of these analysts and begin to drop.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: While I have no business relationship with Microsoft of any sort, I am the owner and editor of several Windows websites ( etc).