Windows 8 (click ticker for report: ) hasn’t hit shelves yet, but skeptics are already declaring it a colossal failure. Oddly enough, however, Microsoft is not priced for a Windows 8 disappointment.
Though nobody knows for sure at this time if Windows 8 will be a success, at the very least, a new user interface will drive new interaction with PC products, and this could serve to stimulate demand. We admit there’s a chance Windows 8 may be the next Vista, but it could also be the next Windows 95. The jury is still out, and it’s simply too early. Still, if Microsoft doesn’t get it right with Windows 8, there will always be the next version (think the failure of Vista, the success of Windows 7 and the recent highs in Microsoft’s stock). And we feel comfortable betting on Microsoft over the long haul, especially with Windows.
But as it relates to potential success of Windows 8, the shift to mobile computing will be the biggest roadblock, in our view. Though mobile computing will never replace the traditional desktop computing experience for some, users’ needs can generally be fulfilled via tablets and smartphones. In fact, much of the Internet has been condensed to apps, Facebook (click ticker for report: ), Twitter, and email, all of which function relatively well on tablets. Because of mobile technology, we think many will continue to delay PC purchases and simply use older laptops and desktops for necessary Microsoft Office Suite functionality. The mobile revolution has likely extended the life cycle of the PC, creating a new (and lower) normal for consumer PC consumption — but we don’t view this demand reset as tragic.
And while we doubt the trend toward mobile computing will negatively impact enterprise demand in the near term, shifts in the workforce could eventually alter enterprise behavior. Perhaps youths who are now “growing up” on iPads (click ticker for report: ) won’t need a physical keyboard in ten years. Regardless, Windows 7 only recently passed Windows XP in terms of global market share (45.3% versus 42.76%), so there appears to be a long runway for Windows upgrades—whether it’s Windows 7 or Windows 8 (or the next version) makes little difference. A large-scale Windows 8 adoption, however, would bode well for the PC industry’s consumer future, which continues to be challenged as users flocking to Mac computers. In any case, we expect the Windows franchise to have a stronghold on the enterprise market for years to come.
Though Windows 8 continues to garner much attention, success or failure of this iteration of Windows is not what’s important. As long as Microsoft gets Windows right over the long haul, shares offer investors considerable valuation upside potential. Microsoft scores a 6 on our Valuentum Buying Index, and we continue to hold shares in our Dividend Growth portfolio. We’re willing to bet of the software giant over the long haul.