Will Windows 9 Be Able To Save Microsoft?

Jul.28.14 | About: Microsoft Corporation (MSFT)

Summary

MSFT is facing challenges from GOOG, AAPL and others on numerous fronts.

Windows 8 turned out to be a flop, Windows phones are struggling, and the Xbox One launch went poorly.

Windows 9, however, is shaping up to be a much needed breath of fresh air for MSFT.

Microsoft (NASDAQ:MSFT) stocks have been trending upwards in recent months as excitement has been building over new CEO Satya Nadella, and the future launch of Windows 9, the company's upcoming operating system. The company's stocks have been rising even after its Xbox One model has been dramatically outsold by Sony's (NYSE:SNE) Playstation 4 and Windows 8 having largely flopped.

While Microsoft's stocks have been rising as of late, many are still concerned over the company's performance. Despite heavy investments in its Windows Phone platforms, the company has secured only 2.7 percent of the global smartphone OS market, vs. 81.1 percent for Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and 15.2 percent for Apple (NASDAQ:AAPL).

Meanwhile, the company's Xbox system, which sold well in the last generation of game consoles, has been beleaguered by a series of pricing and management missteps. As a result, its gaming system is being outsold by the Playstation 4, its chief competitor in said market.

Windows still holds a stranglehold on the operating system market, with Windows 7 owning just over 50 percent of the PC OS market share and Windows XP owning an additional 25 percent. Windows 8 platforms and Windows Vista combined make up another 15 percent. In the trendsetting United States, however, Apple's Mac OS is gaining ground, now accounting for more than 15 percent of domestic market share.

Windows 9 Will Seek To Unify Devices

Perhaps the most exciting aspect of Windows 9 will be its rumored ability to unite all of Microsoft's major devices, including tablets, smartphones, computers, and Xbox gaming system. Currently, many of the company's tablets and computers use the same OS, Windows 8.1, but the Xbox uses its own native system and smartphones run on the Windows Phone operating system. Many of the company's tablets also run on a watered down version of Windows 8, called Windows RT.

While most of the devices are now integrated and cross-compatible to a high-degree, the lack of a unified operating system has forced developers to develop different programs for each system. The use of both x86 and ARM, for example, results in two fundamentally different architectures being used, which requires developers to create new code for each.

In a recent conference call Nadella emphasized that the development of Windows for each device is no longer being driven by individual teams, but instead by one unified team. This team is working to develop one Windows operating system that can then be used on most, if not all, of Microsoft's devices.

Beyond making it easier to develop programs, a unified Windows system will make it easier for the company to provide other services, such as security updates and cloud services. At the same time, the company will be able to reduce redundancies. By being able to create a unified team to run the development of Windows across all major platforms, Microsoft will be able to cut staffing needs.

Apps May Prove Key For Tablets and Phones

Unifying the operating system will make it easier for developers to develop apps, and for consumers to use their many different devices in sync with one another. Importantly, with developers being able to develop one program that will then work for computers, tablets, and phones, there will be a greater incentive to invest in apps. Microsoft has fallen behind in the app war as both Google and Apple have raced ahead.

As of 2013 Windows Phone had some 400,000 apps available for use. While this number might seem impressive at first glance, Google's Android platform now supports more than 1.3 million and Apple's iOS supports more than 1.2 million. In order for Microsoft to increase its market share of the smartphone market, expanding the number of available apps will prove essential.

Windows 9 Will Prove Pivotal For Microsoft

Microsoft is not in immediate danger, the company is rich in cash and is still producing profits. Still, there are numerous threats on the horizon and while Microsoft has proven that it is willing to throw money at its problems, it has not proven that it can successfully convert investments into results. Outside of its popular Windows 7 operating system, the company has struggled to gain ground.

If Windows 9 turns out to be yet another flop, Microsoft could find itself in a difficult situation. The company relies on the sale of its operating systems and updated software for each system to drive revenues. Windows 8 has thus far been rejected by most consumers, depriving Microsoft of potential revenue streams.

Still, Microsoft has proven apt at responding to consumer sentiments, even if it does take a few iterations to do so correctly. Following the near universal success of Windows XP, Windows Vista was a flop. After that stumble, however, Microsoft launched the popular Windows 7 OS before once again dropping the ball with Windows 8.

Now Windows 9 looks poised for success. If so, Microsoft could see its fortunes improve and that will send stock prices upwards. Of course, Microsoft could drop the ball once again, but early indicators are looking positive. For investors willing to accept a bit of risk with a lot of upside, Microsoft shares would be a good addition to any portfolio. Windows 9 is not due out until 2015.

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