Windows is 32% of Microsoft’s Stock; Windows 7 Key to Future Growth

Microsoft’s (NASDAQ:MSFT) new Windows 7 operating system helped the company gain about 1% market share during the past year.  We estimate that Microsoft operating system market share increased from 73% to 74% during 2009. We believe Microsoft could continue to gain market share in the long term due to the continued success of Windows 7.

We have updated the Trefis price estimate for Microsoft’s stock from $30.53 to $32.33 in part to reflect higher Microsoft share of PC operating systems. Below we explain the significance of the Windows operating system business for Microsoft and how Windows 7 market share can impact Microsoft’s stock.

Windows constitutes 32% of Microsoft’s stock

Although facing increasing competition from Apple’s (NASDAQ:AAPL) Mac OS and the Linux operating system, Microsoft remains the worldwide leader in operating system sales.  We estimate that the company had 74% market share amongst the 287 million PCs shipped in 2009.  Overall, we estimate that the Windows business constitutes 32% of Microsoft’s stock and that Windows market share is an important driver of company’s long-term value.

Windows 7 could propel Microsoft’s market share to 76%

Microsoft launched Windows 7 on October 7, 2009 and the revamped Windows OS was instrumental in helping Microsoft gain market of about 1% share in 2009.  In the fourth quarter of 2009, Microsoft sold 60 million Windows 7 licenses making it the fastest selling operating system in history.  Windows is installed on more than 90% of recent netbooks sold with Windows 7 accounting for well over 50% of those installations.

We believe the success of Windws 7 could continue in the future.  A few key features position Windows 7 for greater success:

1. Windows 7 is significantly faster than Vista (the previous version of Windows)
2. Windows 7 is easier to use with better organization of files and documents
3. Easier to share files and printers among multiple PCs (important for business customers)

We estimate that Microsoft’s operating system market share will increase to 76% over our forecast period as a result of Windows 7 which has helped to reverse some of the decline associated with its previous Windows Vista operating system.

You can modify our forecast above to see how Microsoft’s stock would be impacted if its market share of PC operating systems were to remain stagnant rather than increase as we have forecast.

For additional analysis and forecasts, here is our complete model for Microsoft’s stock.