Microsoft (NASDAQ:MSFT) is the largest consumer software maker and leads the computer operating system market with the Windows OS where it competes with Apple‘s (NASDAQ:AAPL) Mac OS X and multiple Linux distributions. Windows 7, which was launched in 2009, was a huge hit and has sold over 450 million licenses since. Microsoft plans to launch the next version of Windows – Windows 8 – in the second half of 2012 that will serve both tablets and desktop PCs.

A recent research report states that tablet sales surpassed total netbook sales in the second quarter of 2011. Netbooks are inexpensive, under-powered notebooks, and have had a good run since their launch. However, since Apple launched the iPad, the tablet market has been expanding significantly, at the expense of the netbook and notebook markets. The report suggests that around 60 million tablets will be sold in 2011 while only netbook sales will reach only 32 million units.^[1]

Windows accounts for around 25% of Microsoft’s $32 Trefis price estimate, which stands nearly 15% above the current market price.

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Slowing Netbook & Notebook Sales to Impact Microsoft’s Revenue Growth

Microsoft currently doesn’t offer a tablet platform. Apple dominates the tablet market with the iPad while Google (NASDAQ:GOOG) is trying to break into the market with the Android OS.

Windows 8 will be a unified operating system for both computers and tablets, and we expect it to contribute significantly to Microsoft’s revenues in the coming years. However, it is still almost a year away from launch and risks being too late to the tablet party.

Windows sales have slowed down considerably in 2011, mainly because of the slowdown in the global PC market, but also because Microsoft hasn’t launched a new OS this year. We expect Microsoft’s Windows sales to start growing again next year as consumers upgrade to Windows 8. We also expect Microsoft to capture some portion of the tablet market from the iPad and Android tablets.

We expect Windows to maintain more than a 75% market share of the operating system market throughout the forecast period. If you think that the actual numbers could vary, you could tweak this chart to see its impact on Microsoft’s price estimate.

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