Does Microsoft Need More Time to Prove Windows 8 Successful?

Microsoft (NASDAQ:MSFT) and the rest of the PC ecosystem have been struggling amid the growing shift to more portable and popular gadgets. Companies like Hewlett-Packard (NYSE:HPQ) and Dell (NASDAQ:DELL) have been counting on the new Windows operating system to spark a catalyst in sales, but a recent report shows that more time will be needed.

How Slow are Sales?

Windows 8

Microsoft launched Windows 8 on October 26 in the United States, but it is off to a slow start. Windows device sales dropped 21 percent between October 21 and November 17, compared to the same period last year, according to leading market research company The NPD Group’s Weekly Tracking Service. The report is based on data from a subset of retailers such as Best Buy (NYSE:BBY) and Wal-Mart (NYSE:WMT), but does not include sales from Microsoft’s websites and retail stores. Notebooks powered by Windows have struggled all year and fell 24 percent from last year. Desktops performed better, but still declined 9 percent.

“After just four weeks on the market, it’s still early to place blame on Windows 8 for the ongoing weakness in the PC market,” said Stephen Baker, vice president of industry analysis at NPD. “We still have the whole holiday selling season ahead of us, but clearly Windows 8 did not prove to be the impetus for a sales turnaround some had hoped for.”

Since its launch, Windows 8 has managed to capture about 58 percent of Windows computing device unit sales, far below the 83 percent Windows 7 represented after only four weeks of hitting shelves. Adding insult to injury, NPD Group notes that Windows 8 tablet sales have been “almost non-existent,” with unit sales totaling less than 1 percent of all Windows 8 device sales.

Is there a silver lining in the report…

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A Silver Lining

“The bad Back-to-School period left a lot of inventory in the channel, which had a real impact on the initial sell-through rates for Windows 8,” said Baker. “The strong performance of Windows 8 notebooks with touchscreens, where Windows 8 truly shines, offers some reason for optimism. These products accounted for 6 percent of Windows 8 notebook sales at an average price of $867 helping to re-establish a premium segment to the Windows consumer notebook market.”

The average selling prices on Windows computing devices also jumped to $477 this year, compared to $433 last year. Windows 8 notebooks have seen an increase of almost $80.

CHEAT SHEET Analysis: Will Windows 8 Provide a “Catalyst for Microsoft Shares?”

One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. Unfortunately, the NPD report is another confirmation that “demand for Windows 8 is not that good right now,” as stated by Asus CFO David Chang recently. Microsoft is still one of the largest companies in the world, with a strong balance sheet and hefty dividend, but its attempt to ignite the PC industry with its new operating system comes at a time when consumers are simply demanding other products from the likes of Apple (NASDAQ:AAPL) and Samsung. Investors looking to go long Microsoft will need to be patient with the company’s Windows 8 effort.

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