2 bits of bad news for Microsoft

IDC put out two reports this week on the PC and tablet industries, and neither one of them was particularly encouraging for Microsoft (NASDAQ: MSFT) investors.

Surface 2. Source: Microsoft.

First, to absolutely no one’s surprise IDC eastimates that PC shipments shrank this year, by 10.1%. That drop was larger than last year’s 9.7% fall and marks the largest PC contraction on record. The research firm noted that even emerging markets, where PC shipments have been a beacon of hope, will see numbers drop in 2014 and rebound only slightly by 2017.

Though the commercial PC segment is faring a bit better than the consumer market — as businesses update older Windows XP systems to Windows 7 or 8 because support for XP will end in 2014 — both are on the decline. A Net Applications report earlier this week showed that Windows 7 now makes up 51.3% of all Windows machines, while XP takes up 34.4%.

But in the commercial realm, there doesn’t seem to be much positive news for Microsoft. Jay Chou, a senior research analyst at IDC, said that even though users spend more hours on PCs every day than on tablets, time spent on a PC is constantly moving down. Chou said in a press release: “[D]espite industry efforts, PC usage has not moved significantly beyond consumption and productivity tasks to differentiate PCs from other devices. As a result, PC lifespans continue to increase, thereby limiting market growth.”

But that’s not the only thing Microsoft should be concerned about. A separate IDC report noted that Android and Apple‘s (NASDAQ: AAPL) iOS will remain the dominant tablet platforms for the foreseeable future. That’s not a surprising revelation by any means, but it delivers another blow to Microsoft’s Surface tablet pursuits. Microsoft’s Windows platform is estimated to grab about 10% of tablet shipments by 2017, while Apple and Android won’t change much from their current share.

iPad Air. Source: Apple.

Microsoft has had a difficult time transitioning its Windows platform into the mobile world, and statements from Microsoft’s executive vice president of devices and studios, Julie Larson-Green, has sparked rumours that the company may kill off its Windows RT platform. The scaled-down RT operating system has been a source of confusion for consumers, and every tablet maker except for Nokia and Microsoft has abandoned it.

IDC also gave some insights into where new tablet growth may come from. The company expects consumers to shift away from smaller tablets in favour of larger versions over the next few years. Part of the shift comes from the growing prevalence of phablets, which give users both mobility and screen sizes that are comparable to small tablet sizes. The IDC also thinks the new, lighter iPad Air may help steer consumers back to larger tablets as well.

If a shift back to larger tablet screens proves true, it may be good news for Apple investors. New rumours have surfaced that the company is working on several versions of iPads with a 12.9-inch screen. While the devices are just speculation at this point, it could point to Apple’s plans to address a dying PC market and create an iPad hybrid, or some variant.

Whether Apple’s plans pan out or not, its clear Microsoft continues to have to have its work cut out for it. Investors really need to see Microsoft have some success with its Surface 2 and Surface Pro 2 tablets. With the holiday shopping season in full swing, the end of this current quarter should show us how well the tablets fared with consumers. But with falling PC shipments and iOS and Android maintaining their tablet foothold, Microsoft will need long-term tablet success to prove that both Windows and the rest of the company can make it in the tablet space.

Want more stock ideas? The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get 3 Stocks for the Great Dividend Boom in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

A version of this article, written by Chris Neiger, originally appeared on

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.