The launch of a new Windows is not an ordinary event in the technology world. The Microsoft (MSFT) OS is still the most-used in the world, by a considerable margin. Therefore, any changes or updates have a global impact and significance. Windows 8 is even more significant in this regard. The company is shifting, for the first time, to a touch based interface as compared to its 'mouse' or 'touchpad' interface. Considering that 25% of PC users still use Windows XP, which was released more than a decade ago, it's a big risk. However, the recent shift of computing to handheld and touch-based devices makes this move necessary, to say the least. Many argue that Microsoft has been reactionary, and has delayed its response to the tablet/smartphone boom. For example, only a few months back, it was pushing its WP7 on manufacturers such as Nokia (NOK). Despite the 'uneasy' reaction of most Windows users, Windows 8 is an inevitable evolution, and Microsoft could either board the wagon or become extinct. We have been bullish on Windows 8 for quite some time, and post-launch our conviction has only become stronger. The broad range of partners, high dividend yield, a beautiful OS; all contribute to our buy rating on MSFT.
Apple (AAPL) is known for its pre-launch secrecy, and for surprising viewers during presentations with the unexpected. The California-based company is able to do this because it manufactures both the hardware and software sides of its products. Microsoft enjoys no such luxury for its Windows launches, because it has a large number of ecosystem partners who are privy to all its product-related info; throwing privacy out the window. The software giant was able to keep a few tricks up its sleeve with its WP8 launch due to the limited number of partners. The company showcased its new OS last week during its New York event. Some features that were unknown before include a 'Kids Corner' feature. The company used Jessica Alba to endorse this very interesting feature. The Kids Corner feature gives kids access to certain apps while the phone is locked. This will be a useful feature for the 'busy mom'. Another interesting feature of the new WP8 is the user ability to lock apps to the lock screen. This would allow users to absorb information from their lock screens without unlocking the phone e.g. news apps, weather apps etc. The look approximately remains the same as WP7, because WP8 also uses Live Tiles, which a user can animate with application data.
Unique Selling Proposition (USP)
Google (GOOG)'s Android and Apple's iOS have already discovered most features that can be useful to a smartphone/tablet user. This leaves little room for Windows 8/WP8 to be innovative and attract loyal iOS or Android users. The USP for Windows therefore is its ability to provide a uniform experience across different devices. Windows 8/WP8 will enable Microsoft to create an ecosystem that is not limited by incompatibility between different modes of computing. The downside to this ambition is the limited applications by third-party vendors for Windows ecosystem. We are optimistic that the application base will continue to improve. Currently, there are 120,000 applications for Windows phones. The sheer number of applications is not an accurate measure of a platform's 'user friendliness' because several apps are usually redundant e.g. more than a 1,000 clock apps for Android on Google Play. Microsoft has announced that it plans to be more focused on bringing the more popular applications to its Windows platform, and according to the software giant, very soon approximately 46 from top 50 applications will be available on Windows. Microsoft will also release a WP8 app for Skype.
We have been bullish on Windows 8 for quite some time. According to recent company disclosures, it has already authorized more than a thousand devices, which will run on Windows 8/WP8. The company is trading at a P/E of 8x, which is approximately half the NASDAQ's 15x. Windows 8 has a huge advantage of an existing loyal user base; it remains to be seen if this loyalty is to 'Windows' or Windows 7 & XP. Microsoft has been very bold with its Windows upgrade, and we believe this boldness will pay off. With an excellent dividend yield of 3.26%, huge share buybacks and Windows 8 growth, MSFT is a buy.