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Apple could gain ground against Microsoft Windows with M2 chips

Apple CEO Tim Cook (right) looks at a newly redesigned MacBook Air laptop during WWDC22 at Apple Park on June 06, 2022 in Cupertino, California. Apple CEO Tim Cook kicked off the annual WWDC22 developer conference.

Justin Sullivan | Getty Images

Apple’s new laptops announced on Monday, featuring the iPhone maker’s next-generation internal chips, could pose new challenges to Microsoft’s lucrative Windows business.

Since Apple started selling Macs powered by its in-house M1 processors in late 2020, the company’s computing business has grown. Earlier this week, Apple introduced the M2, which will debut in the new 13-inch MacBook Air and MacBook Pro.

The new chip will feature 25% more transistors and 50% more bandwidth than the M1.

Mikako Kitagawa, an analyst with technology industry research firm Gartner, said Apple could continue to gain market share with the M2 architecture. In 2021, Apple held 7.9% of global PC shipments by operating system, while Windows controlled 81.8%, according to Gartner estimates. The company expects Apple’s share to increase to 10.7% in 2026 while Windows’ share will slip to 80.5%.

Kitagawa said an updated forecast that will likely make Apple’s performance stronger will arrive in the coming weeks.

Apple’s Mac business has been revived by new devices featuring the company’s own chips replacing Intel’s processors. The first was the MacBook Air released last year, followed by updated models of the iMac, Mac Mini and MacBook Pro laptops, and a new model for power users called the Mac Studio.

Apple’s newer devices have longer battery life than their older Intel-based counterparts and plenty of processing power.

Sales jumped. Apple’s Mac business grew 23% in fiscal year 2021 to more than $35 billion in sales. In the March quarter, Mac sales grew more than 14%, a faster increase than any other category of Apple hardware. Apple CEO Tim Cook told analysts in April that “incredible customer response to our M1-powered Macs helped propel a 15% year-over-year increase in revenue despite supply constraints”.

This is not good news for Microsoft.

Most of Microsoft’s Windows revenue comes from licenses it sells to Dell, HP, Lenovo and other device manufacturers. That’s 7.5% of Microsoft’s total revenue and nearly 11% of gross profit, Morgan Stanley analysts led by Keith Weiss wrote in a note this week.

As Microsoft loses market share, “a lot of price control is lost in the marketplace,” said Brad Brooks, CEO of cybersecurity startup Censys and former vice president of the Windows consumer business. from Microsoft.

Most Windows licensing revenue to device manufacturers comes from commercial customers. Brooks said Apple is growing among consumers, and he’s learned in his nine years at Microsoft that there’s a positive correlation between consumer usage and what happens at work.

“Once they start using a different set of products in their home environment, they’re more likely to adopt that environment in their work environment,” Brooks said, speaking of business leaders who make business decisions. purchase of technology.

Brooks said he switched to a Mac as his primary computer in 2017 and would like an M2 machine in the future. All of his company’s roughly 150 employees use Macs as their primary computers, he said.

Businesses have been slow to adopt Apple’s M1 computers due to fears that key applications won’t be compatible. But Adobe, Microsoft and other developers have gradually released native versions of their software for devices, said Kitagawa, who now expects enterprise adoption to grow.

Patrick Moorhead, CEO of industry research firm Moor Insights and Strategy, said Windows PCs could eventually have battery life and performance to match Apple’s latest Macs. Of the chipmakers they use, “it’s currently closer between Apple and AMD than between Apple and Intel,” Moorhead said.

Apple has other levers to pull, however, as it could offer cheaper computers. Moorhead is considering a MacBook SE that could cost $800 or $900, compared to the $1,199 starting price for Apple’s upcoming MacBook Air M2. It would be similar to what Apple did with the iPhone SE, a budget iPhone that lacks some of the company’s latest smartphone enhancements.

“A MacBook SE at a much lower price would disrupt Windows quite significantly,” Moorhead said.

Microsoft did not respond to a request for comment.

– CNBC’s Kif Leswing contributed to this report.

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