Just months after Microsoft Corp (MSFT) announced that it would design an operating system based on ARM Holdings’ (ARMH) chip technology, the company showcased its Windows 8 software.
The decision marks Microsoft’s divergence from its traditional partner Intel Corp (INTC), which is also fighting its own battle in the mobile computing space. Intel started promoting its trademarked “ultrabook,” which it expects will enable notebook-makers to regain some of the market share it lost to Apple Inc’s (AAPL) iPad. The devices are expected to be lighter and just slightly more expensive than Apple’s, while providing greater functionality.
Intel executives stated that ultrabooks based on Intel’s new chips would sport an advanced touch screen, start in a few seconds, connect to the Internet almost immediately and have several days of battery life on a single charge. They would soon be based on Intel’s IvyBridge chip design.
While ASUSTEK appears to be its only partner right now, the device has promise and Intel may not be disappointed. In any case, tablet partners are expected to touch 35 by year-end, so Intel’s mobile push appears to be on track. A possible negative with respect to ultrabooks could be a non-removable battery, which could require device replacement in two years or so.
But getting back to Microsoft. The company’s Windows 8 operating system (not likely to launch until next year) was developed on the belief that Intel chips would continue to lag ARM-based chips from Qualcomm (QCOM), Texas Instruments (TXN), NVIDIA Corp (NVDA), among others. Therefore, the devices showcased by Microsoft were based on chips from these companies.
Microsoft’s Windows business did not do that well in the last quarter and the reason is fairly obvious. The company has a leading position in traditional computing platforms, such as desktops and notebooks and has even eked out a position in netbooks.
However, netbooks are a consumer-type product, therefore sales were severely impacted by diversion of consumer spend to tablets. Since the iPad uses Apple’s own OS and constitutes more than two-thirds of the tablet market, Microsoft has to hasten the adoption of other Windows-based tablets that could wrest some share from Apple.
But Microsoft’s job is cut out, considering that tablets based on Google Inc’s (GOOG) Honeycomb will soon be available and Hewlett-Packard Company (HPQ) has also announced its intention of entering the market with the WebOS it acquired from Palm.
Microsoft shares carry a Zacks #3 Rank (short-term Hold recommendation), while Intel shares are ranked #2, implying a Buy rating in the short term (1-3 months).
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