Windows 8: Profiting from the Inevitable

Apple and Google are working to become significant software platform companies, like Microsoft has been for a long time.  Recently they’ve had some remarkable success: Apple in iPods, iPhones and now iPads; and Google in smartphones. However, there is no platform that Apple and Google can produce, that Microsoft cannot also produce.  After all, Microsoft has created the still dominant Windows, Office and Xbox platforms. Windows Phone 7.5 and its “metro” touch interface is recent testament to the ability to develop excellent new platforms.  With the forthcoming Windows 8, Microsoft is doing the hard work of integrating the touch interface with its traditional windows desktop. The result is clearly a win/win scenario since the customer will get a 2 in 1 tablet PC product for less than half the price of the comparable, but separate tablet and microcomputer products like the iPad and Macbook.  While Apple ostensibly could do a similar integration, it seems to prefer instead to have people buy both products separately, at considerable extra cost.  As for Google, it can’t compete in this arena, because it has no desktop platform.

By  this time next year, what is already clear to keen observers today will also be clear to everyone: the Windows PC will be extending its domination of computing from the PC market to the tablet market. Given Microsoft’s dominant market position with Windows, this is all but inevitable.  The new machine will be called the Windows PC tablet or the Windows tablet PC. With time, it will most likely again simply be called the Windows PC.

For investors, Windows will again be a growth story along side its other major growth businesses (i.e.: Microsoft Business Division/Office, Server and Tools).  Given Microsoft’s low valuation on the stock market, one should reasonably expect new growth to drive up its stock market value even as its earnings grow more rapidly.  You heard it here:  it is reasonable to expect the stock price to double over a few years.

P.S. For a sampling of the new Tablet PCs launching this fall, see:  http://www.microsoft.com/en-us/news/presskits/oem/imagegallery.aspx

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About klippensteincapital

Indentifying and valuing publically traded companies for profitable investment.

3 responses to “Windows 8: Profiting from the Inevitable”

  1. Rose Anne says :

    Do you know a Thomas Falkensteiner?

  2. Bob says :

    A half a year later and you are still pretty well on the money!

    I made a lot of money in mfst starting around the 1990, but sold it to diversify in the other leaders in the tech field. I have recently bought into mfst again, but am thinking, I should sell ‘some’ in favor of more risky plays, like nok and gluu. Your comments suggest you are holding mfst for the same reasons I am. mfst usually takes a few tries and a few years before it get things right. In the meantime my money might do better elsewhere. Trades are cheap. I can always top up mfst later. It’s too big to pop quickly. I did pick up a good chunk of nok at 1.79, so I have a good start to average from there.

    There are some downsides as well. Probably better stated by Dana than I could. See here: http://bit.ly/S0Ah7f

    None of this portfolio forms any part of my retirement, so I tend to play it rather risky. Its more fun that way.

    • klippensteincapital says :

      Dana’s article is not really that good especially since he misses the key point that Microsoft’s PE is only 15 because of a one time writeoff of goodwhile. Without that one time item (with Microsoft, such writeoffs are indeed rare), Microsoft’s PE is closer to 10. Ifyou adjust for net cash of almost 50 billion, the PE is more like 8. So I would sell MSFT at this point due to valuation. I suggest reading Ashraf’s fine article for a good “buy” arguement(seekingalpha.com/article/868651). I agree with him and found his article to be one of the best I have read.

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