Steve Ballmer, chief executive officer of Microsoft Corp. Photographer: Aaron M. Sprecher/Bloomberg
Dec. 15 (Bloomberg) -- James Kelleher, director of research at Argus Research Co., talks about the outlook for technology stocks, including Cisco Systems Inc. and Apple Inc. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
Microsoft Corp. Chief Executive Officer Steve Ballmer, said to unveil new software for tablets at the Consumer Electronics Show next week, will face skeptics who say his company won’t soon narrow Apple Inc.’s iPad lead.
“By the time Microsoft gets it figured out everybody will already own an iPad,” said Keith Goddard, CEO of Capital Advisors Inc. an investing firm in Tulsa, Oklahoma, that holds Apple shares. “That train has left the station.”
Microsoft will announce a full version of the Windows computer operating system that runs on ARM Holdings Plc technology at the show, which begins in Las Vegas on Jan. 6, two people familiar with Microsoft’s plans said last week.
Allying with ARM is Microsoft’s way of stepping up rivalry with Apple, which has garnered the largest share of the tablet market with its iPad, a touch-screen device introduced in April that handles video, music and computing tasks. The effort may falter unless Ballmer can match the features consumers have come to expect from the iPad, Goddard said.
The new Windows version would be tailored for battery- powered devices, such as tablets and wireless handsets, the people said. Chips based on ARM technology are made by Qualcomm Inc., Texas Instruments Inc. and Samsung Electronics Co.
Frank Shaw, a spokesman for Redmond, Washington-based Microsoft, declined to comment, pointing instead to remarks by Ballmer in July.
“We’re tuning Windows 7 to new slate hardware designs,” Ballmer told analysts then. He also said, Apple has “sold certainly more than I’d like them to sell.”
IPad Gains Share
Computer makers have unsuccessfully been trying to sell tablet-style computers based on Microsoft’s Windows for about a decade. Before the iPad, tablets made up only about 2 percent of the PC market. Apple, based in Cupertino, California, has sold 7.46 million iPads through September. According to analysts at Goldman Sachs Group Inc., it may sell as many at 37.2 million iPads next year.
That indicates that the tablet computer’s share of the PC market may rise to 9.2 percent next year, based on a prediction by research firm IDC for 402.7 million PC shipments in 2011.
Microsoft dropped 23 cents to $28.07 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have declined 7.9 percent this year.
Besides gaining share, Apple has also redefined consumer expectations for what a tablet computer should do, says Michael Gartenberg, an analyst at Gartner Inc. Instead of requiring the use of a stylus pen to serve as a computer mouse, the iPad allows people to navigate using their fingers.
‘Square Peg’
“Apple did this year what no one had done in the previous 10 -- crack that space between the PC and the phone,” said Gartenberg, who’s based in New York. “Microsoft has been working very hard at putting a square peg in a round hole.”
Still, an introduction at CES gives Microsoft a chance to win over some of the more than 100,000 people expected to attend the premier technology trade show, he said.
“It’s a wonderful opportunity for Microsoft and Ballmer to put a stake in the ground,” said Gartenberg. “Now that Apple cracked the market no one wants to get left behind.”
By adapting its computer operating system for a tablet, Microsoft is taking a different approach from Apple, which used a mobile-phone operating system as the basis for the iPad. Apple’s software enables instant startup, longer battery life, and access to the more than 300,000 applications already developed for the iPhone.
‘Frankentablets’
Microsoft is taking software designed for use with a mouse and keyboard and adapting it to a touch screen, according to the people familiar with the matter. That will require developers to rework PC programs to make them useful on a tablet.
Chips based on ARM technology are used in most smartphones, as well as Apple’s iPad. Still, they don’t crunch numbers and handle other computing tasks as quickly as Intel Corp. chips, which run the majority of PCs.
Loading a full version of Windows onto a tablet powered by a chip designed for mobile phones may result in an unresponsive or slow-moving machine, said Michael Cherry, an analyst at Directions on Microsoft, a Seattle-based research firm. Existing tablets based on Windows are difficult to use, he said.
“Current Windows tablets are what I call Frankentablets -- part laptop” and part tablet, he said. “They do neither role well.”
Microsoft should leave Windows in the PC environment, where it works best, and focus instead on scaling up its mobile-phone software to work on the bigger screen of a tablet, Cherry said.
Then There’s Google
Microsoft has sparred with Apple since the birth of the PC. Windows won early rounds, relegating Macintosh computers to less than 10 percent of the market.
Now, it’s also contending with Google Inc., the Mountain View, California-based Internet company behind the Android mobile-phone operating system. Earlier this year, Android surpassed Apple by number of devices running the software in the U.S., according to NPD Group.
Companies such as Dell Inc. and Samsung, which use Microsoft’s software in their PCs, are already working on tablets based on Android as they try to keep from losing ground to Apple.
The longer it takes Microsoft to get an operating system into tablets, the less likely the company can challenge Apple and Google, said Tim Bajarin, president of Creative Strategies, a research firm in Campbell, California.
“Given this late move by Microsoft, it would still be quite an uphill battle,” he said.
To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net; Adam Satariano in San Francisco at asatariano1@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
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