DELL Dell Inc. (MM)

Taiwanese computer-maker Asustek Computer is contemplating the use of Windows 8 from the world’s largest software maker Microsoft Corp. (MSFT).

If there is a successful negotiation, Microsoft’s latest OS would find another growth avenue in the Asian market. Windows 8 will be used in Asustek’s Padfone, which is combination of a smartphone and tablet.

Asustek Computer Inc. was founded in 1989. Its vast product portfolio includes desktops, laptops, mobile phones, monitors, motherboards, servers, tablet PCs and video cards. In terms of PC sales, it lags Hewlett-Packard Co. (HPQ), Lenovo, Dell Inc. (DELL) and Acer. It also manufactures Nexus 7, a tablet range from the search engine giant  Google Inc. (GOOG).

Asus will sell its second generation Padfone in the Chinese markets at a steep price tag of $686. Asus’s Padfone will directly compete with Apple Inc.'s (AAPL) iPhone 5 and Samsung's Galaxy Note. Currently, the hybrid versions of the smartphone-tablet have seen mixed success with IHS iSuppli, an independent market research firm, expecting 60.4 million units to ship this year, a 136% jump from last year’s shipment of 25.6 million units. China is one of the largest markets for mobile devices and growth rates are expected to be very strong here.

The PC makers are currently changing their business strategy, as PC sales are showing no sign of recovery. Consumers have changed their preferences from PCs or desktops to smartphones or tablets. As per marker research firm IDC, the global PC market contracted 8.6% year over year  in the third quarter of 2012. However, the smartphone market saw a 2.4% jump in the same period with 444.5 million units of smartphones shipping worldwide.

Microsoft claims that it has sold 60.0 million Windows 8 licenses , will behind market leader Android. According to Gartner, Android made up 72.0% of the smartphone sales in the third quarter of 2012. However, with Nokia commanding 19.2% of the market share coupled with success of its Lumia range of models, Microsoft’s Windows based OS can see some upside.

IDC is expecting that Windows-based phones may become the fastest growing smartphone OS as it is projected to jump from 2.6% in 2012 to 11.4% in 2016.

Currently, just like other PC makers, Microsoft is also battling the slump in the PC market caused by the sluggish economy. In addition, the popularity of tablets from Apple and Google have been cannibalizing PC market sales, leading to further deterioration of the scenario. Whether Microsoft sees notable success this year remains. The success of the licensing deal with Asustek can open up further such licensing deals with other PC manufacturers for Microsoft in the future.

Microsoft reported revenue, excluding deferrals, of $16.01 billion in the first quarter of fiscal 2013, down 11.4% sequentially and 7.9% from the year-ago period. Revenues also missed the Zacks Consensus Estimate by 2.5%.

Microsoft has a Zacks Rank #3 (Hold).

 
APPLE INC (AAPL): Free Stock Analysis Report
 
DELL INC (DELL): Free Stock Analysis Report
 
GOOGLE INC-CL A (GOOG): Free Stock Analysis Report
 
HEWLETT PACKARD (HPQ): Free Stock Analysis Report
 
MICROSOFT CORP (MSFT): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research