Is Microsoft Finally Learning To Play The Mobile Game?

| About: Microsoft Corporation (MSFT)

Both Apple (NASDAQ:AAPL)and Microsoft (NASDAQ:MSFT) have been fighting court battles with Google (NASDAQ:GOOG) and/or its partners [like Samsung (OTC:SSNLF)] that use the Android operating system on their mobile devices. Both Apple and Microsoft have problems with Android; whereas Apple's contention is that it is a copy of its iOS smartphone software, Microsoft contends that it holds patents that cover a number of features of Google's Android.

The tussle between these biggies of the tech world, Apple, Microsoft, Google and Samsung, reminds us of the cola wars of the 1980s; only this time it is a battle fought not in marketing campaigns but in courts of law. Another related battle is being fought in the stock market, with Apple ruling the roost as the star performer of the stock market and Microsoft getting beaten down for the last so many years. The launch of Microsoft's Surface Tablet and Windows 8 operating system, however, may signal a change in fortunes. The tablet and the OS are both really great products directly forcing themselves onto Apple's space, and one wonders if with this launch Microsoft will try to regain something of its lost stature back from Apple.

Years ago, there was another war between Apple and Microsoft. Microsoft emerged as a winner in that PC war and raced to the top, leaving Apple far behind. The reason is important for today's discussion - Microsoft won that one because it offered software for others' computers while Apple stuck to its closed-door policy of offering only end-to-end products. So while Apple gained a loyal following because of its really great products, it just couldn't attain the breadth that Microsoft did in the global market.

However, in the mobile/smartphone war, Microsoft had long been out of contention despite being the first one to come up with a tablet years ago. With Apple-Google and Apple-Samsung being the main rivals in software and hardware respectively, Microsoft was nowhere in the game. However, it seems like that is about to change now.

MSFT's performance in the stock market hasn't been anything to write home about. Over the last ten years, MSFT appreciated only 11.32%. Apple, on the other hand, showed spectacular results and performance, leaving investors wondering if MSFT was dead money and not worth investing anymore. In comparison, AAPL's performance in the market is a study in contrast - a steady rise of an astounding 6,951.34% in a similar time span.

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Source: Google Finance

MSFT is the straight red line against the towering hill of AAPL. Of interest is that the S&P 500 Index (.INX) appreciated 56.97% and the TECHNOLOGY SELECT SECTOR INDEX (.IXT) did 91.79% during the same period.

However, there are indications that things are going to change for the Microsoft stock. Have a look at the 5-day price chart of MSFT, AAPL and S&P 500 Index.

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The blue line of MSFT is surging ahead of both AAPL and S&P 500. Apple, the darling of the market till now seems to be losing some of its luster. While this may appear like a short term fluke, there are many things in the works positive to Microsoft that might be responsible for more than a short term change.

For the last five years, Apple seemed to be doing everything right. Things started changing with Apple missing its earnings estimate continuously for two quarters and thenceforth, nothing seemed to be going right for Apple.

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Source: Nasdaq

Apple's new mapping software in the iPhone 5 was found to have embarrassing errors leading to the resignation of Scott Forstall, Apple's mobile software products head who had been with the company for fifteen long years. Suddenly we heard analysts saying that Apple had lost its vision and questions started surfacing whether this was the beginning of a fall from grace. To top it all, analysts like Doug Kass started talking about problems with the company's product supply chain, with Apple losing its first mover advantage and growing too big to manage.

However, Microsoft threw a bigger earnings surprise over Apple; although what needs to be noted here is that in the last four quarters, this was the first time that MSFT had shown a negative earnings surprise.

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However, the company that was on the verge of being considered as dead money started getting accolades from all round, even from unexpected quarters.

Not only is Microsoft's Surface tablet getting good reviews (here is one from Walt Mossberg), its new Windows 8 operating system is off to a good start with 4 million copies sold within three days of launch.

Microsoft has borrowed a page out of Apple's book. After years of developing software for others' computers, with the Surface tablet, it has chosen to build a product from start to finish - hardware, software, core apps and an ecosystem of downloadable apps. Side by side, the company is also preparing back-up plans to make its own mobile phones should anything go wrong with its arrangement of providing software for handset manufacturers such as Nokia and HTC.

Microsoft beat Apple in the PC war by offering software for others' computers as against the closed ecosystem approach of Apple. This time it is doing both. It is creating an entirely self-contained eco-system around the tablet, while also offering its software to other players. Mathematically, that is potentially a larger market, a larger playing field, if you will, that Microsoft has access to. If it just gets its players right, this will be an interesting game to watch.

Also importantly, Microsoft has a long experience in dealing with corporate clients. Many IT professionals are comfortable with Microsoft's Windows and other products and unlikely to ditch it in favor of iOS or Android as long as it gives results. Add to that the good reviews that the Surface tablet and Windows 8 are getting, and it certainly seems we are going to live in some pretty interesting times.

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.