The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.



Microsoft Stock Prediction

Summary:

Microsoft’s partner in China, phone vendor Xiaomi has released its first ever laptop.

Unlike previous announcement, Xiaomi’s first laptop is not running Linux. The Xiaomi Mi Notebook Air is a Windows 10 clone of the MacBook Air.

I predict that Xiaomi’s declining Android phone business will force it to consider making Windows 10 Mobile handsets.

Xiaomi already creates Android and Windows 10 versions of its Mi Pad tablet. Xiaomi can try making budget-friendly iPhone-looking Windows 10 phones too.

Microsoft has long-term economic benefits from its partnership with Xiaomi. Windows 10 Mobile needs the support of popular phone vendors.

Xiaomi, one of the most exciting smartphone firms from China, will likely expand its business to building and selling Microsoft (MSFT) Windows 10 Mobile handsets. Doing so will complement its recently released first ever Windows 10 laptop, the Mi Notebook Air. Xiaomi’s first-ever laptop was supposed to run a custom Linux OS but that firm has a change of heart.

Microsoft’s Continuum for Phones technology that allows Windows Mobile 10 handsets to act like mini computers will expand Xiaomi’s total addressable market. Microsoft quit making cheap Windows phones earlier this year. This will give third-party phone vendors like Xiaomi to take up the slack.

Only Acer is the big name firm that is left making cheap Windows Phones. I am sure Xiaomi will see the economic opportunity in servicing the old customer base accustomed to cheap Lumia phones. There are still tens of millions of Windows phone enthusiasts that got abandoned by Microsoft’s decision to end its cheap Lumia phone business.

Xiaomi’s future growth lies in going outside its Android comfort zone. Xiaomi is famous for direct selling affordable iPhone-looking Android phones. Unfortunately, Xiaomi’s success has been imitated by other Chinese firms like Oppo and Vivo. As per the latest data from IDC, Xiaomi’s phone sales in China declined by a whopping 38.4% year-over-year in Q2 2016.



My point is that rivals like Oppo and Vivo found it easy to beat Xiaomi when it comes to selling cheap Android phones. Xiaomi cannot prosper if it continues to compete with other Chinese firms inside the race-to-the-bottom arena of Android devices.

Building and selling Windows 10 phones will allow Xiaomi to differentiate itself against other Chinese phone vendors. Xiaomi has little future if it relies solely on selling $99 Android phones. There are now dozens of sub-$60 Android phones available from Chinese vendors.

Like I said earlier, Microsoft has abandoned the niche market for sub-$200 Windows phone market. It is a clear signal for struggling Android phone vendors to exploit immediately.

Why Microsoft Investors Should Care

Microsoft is desperate to keep the Windows 10 Mobile hardware franchise alive because the smartphone is the new computer. Xiaomi could become a key partner toward Microsoft keeping Windows popular among people who now prefer to use smartphones over desktop computers/laptops.

The best possible scenario is for Xiaomi to exploit its close relationship with Microsoft. I believe they are very close because Satya Nadella allowed Xiaomi to buy 1,500 patents from Microsoft to help that Chinese firm’s phone/tablet business. The published condition of the patent sale is that Xiaomi agreed to pre-install Microsoft mobile apps like Office 365 and Skype inside its Android devices.

However, I suspect that the partnership between these two firms includes the possibility that Xiaomi will in due course consider selling Windows 10 versions of its popular Android Phones. I also suspect that Microsoft is willing to give other incentives or contra revenue to Xiaomi if that Chinese firm starts making Windows 10 Mobile handsets.

The truth is Microsoft needs phone vendors like Xiaomi to keep its Windows 10 Mobile alive. Microsoft’s move to shut down its line of cheap Lumia phone business is precisely to give other phone vendors the chance to flourish as Windows 10 phone vendors.

Come 2017, Microsoft will likely focus on selling its long-rumored high-end Surface Windows phones. Xiaomi and Acer could then focus on mid-range and entry-level Windows handsets. Selling Windows 10 phones will ease the pressure on Xiaomi’s declining Android phone business.

Microsoft’s benefit from Xiaomi selling cheap Windows 10 phones is that Windows 10 Mobile will attract more users in China, Asia, and in other countries where the Xiaomi brand is strong. Unless big name phone vendors like Xiaomi starts backing the Windows 10 Mobile platform, Microsoft’s effort to put Windows 10 on one billion devices is impossible to achieve.

Giving Xiaomi Its Custom Windows App Store Is A Good Incentive

My belief that Xiaomi will eventually sell Windows 10 phone is a bit inspired by the fact that it already sells Windows 10 version of its Android Mi Pad 2. Xiaomi is clearly not averse to making Windows and Android versions of its mobile product.

Xiaomi is also the only Chinese firm who accepted Microsoft’s offer of installing custom Windows 10 Mobile ROM to run on Android phones. My point is that it will be smarter for Xiaomi to just create Windows 10 versions of its Mi 4 and Mi 5 Android handsets, rather than force users of those phones to experiment with custom Windows 10 ROMs.

Xiaomi could demand Microsoft to allow it to have its own Windows 10 app store like it does now with its Android devices. Xiaomi could sell Windows 10 phones with little to no hardware profit and just try to make money from users buying apps from its own Windows 10 app store.

Microsoft already allowed Xiaomi to use customized Chinese versions of Windows 10 on the Mi Notebook Air and Mi Pad 2. It won’t take too much effort on Xiaomi to get Microsoft’s permission to build its own Windows app store in China.

Microsoft should not forget that Xiaomi could sell more than 60 million Android phones every year. Xiaomi is certainly capable of selling 10 million of more Windows 10 phones.

Conclusion

I still rate MSFT as a Strong Buy for long-term investors. Nadella is doing all the right moves to gain new allies like Xiaomi to keep Windows relevant in during this Post-PC age. Xiaomi could become a prime mover of Windows 10 Mobile devices if Microsoft allows it to do so.

My go-long recommendation for MSFT is again strongly supported by its positive algorithmic buy signals. The I Know First deep learning machines are saying that going long on MSFT is highly likely to produce capital gains for you. MSFT still touts positive buy-me algorithmic signals based on its one-month, 3-month, and one-year predicted stock trends.