I have long been bullish on Microsoft's (MSFT) new operating system W8. The reason is that it is the first operating system that incorporates touch screen technology, literally transferring the PC to much more than a simple commuting device as we knew it until now.
And while PC sales have seen better days over the past year or so, nevertheless I am confident that eventually PC sales will take off. There are several reasons for this:
1) I never bought the death to the PC theory. Yes there are many other gadgets today that compete with PCs in many different ways, however all these gadgets are complimentary to computing and not the real computing McCoy.
2) While tablets are here to stay and are a cheaper computing alternative than fully fledged PCs, they can never replace the PC in any way. Tablets are a big thing in the developing world because they offer a cheaper alternative to PCs, but in the developed world, they are nothing but another gadget. That's the reason why tablets are mostly used for entertainment purposes.
3) Third, with PC sales being in a slump over the past several years, pent up demand has been building up. The tipping point I think is the arrival of W8. Eventually people will get back to buying PCs once the tablet craze is over. And I think the tablet craze is over, at least in the U.S..
Several days ago Gartner said that worldwide PC shipments in the third quarter of 2013 declined 8.6 percent. However if one looks at the data for the U.S., sales were up. In fact PC shipments in the U.S. rose by 3.5% y-o-y and also registered the second consecutive quarter of growth. While two quarters don't make a trend, I have a hunch that the bottom is in for PC shipments in the U.S. As for international shipments, I also think that we will see a bottom in 2014.
If we couple that with the fact that touch-screen PCs have come down in price by a lot over the past several months, I think PC shipments will be on the rise from now on, for the considerable future. Maybe growth will be anemic and tablet sales will continue to grow, but as far as PC sales are concerned, I think the downtrend is over.
As further evidence that touch-screen PC sales are the catalyst for the bottom in PC sales, only Apple (AAPL) registered lower PC sales. While this might be attributed to many reasons, I think it has more to do with the fact that Apple does not have a touch-screen PC yet. For once I think Apple is behind the curve.
Microsoft still powers 90% of the worlds PCs. In order for Microsoft to make a sale and benefit, people simply need to upgrade to W8 from earlier versions and buy a touch-screen monitor. Once you do that, you are set and ready for the new age of computing. You actually don't need to buy a new PC or in need of a faster processor.
So while companies like Intel (INTC) will probably continue to see anemic sales, I expect Microsoft's W8 sales to kick off and boost Microsoft's earnings over the next several quarters, and also help propel PC sales along the way.