Demand for mobile devices also drives the associated software upside potential. Recent estimates show that 1.74 billion smartphones, media tablets, two-in-one PCs and notebooks shipped in 2015 -- that's a year-on-year increase of 5 percent, according to the the latest worldwide market study by Canalys.
Growth was driven by two-in-ones and smartphones, while tablets and notebooks declined. According to the Canalys analyst assessment, Microsoft has experienced the greatest challenge from the pivotal shift to mobility. Its share of the total mobility market was just 12 percent, against Google (Alphabet) at 70 percent and Apple at 17 percent.
Shipments of mobility products running the Linux-based operating system (OS) increased by over 200 percent. This was primarily driven by YunOS shipments, which became the third largest smartphone platform in China within the fourth quarter of 2015. In the notebook PC space, there are similar shifts in the OS landscape.
Open Source OS Gains Market Share
Chromebook shipments were up 22 percent annually in 2015, and the number of notebook PCs shipping without Microsoft Windows is increasing. Opting for an alternative open source OS, such as Ubuntu, can significantly reduce the cost of a notebook PC. This is an attractive proposition for low-income consumers.
The consumer electronics industry is also grappling with other shifts in dynamics. Google Android grew only 6 percent as tablets went into a decline, denting the 10 percent growth from its smartphones alone, which was driven by Alphabet’s vast base of ODMs. But despite Apple also suffering heavy declines in tablets, iOS share grew by 10 percent and OS X notebooks by 7 percent.
"The tablet market declined throughout 2015 as replacement cycles lengthened. Tablet vendors need to get people excited about the category once again. A good start would be to make these products more versatile. Apple is now emphasizing productivity on tablets, an area where Microsoft arguably leads and Android trails," said Tim Coulling, senior analyst at Canalys.
Apple has gained share with the iPad Pro, which outsold Microsoft’s Surface in Q4. However, there is work to be done to maintain this momentum, and numerous trade-offs must be made when trying to use the iPad Pro as a notebook PC replacement -- which the Microsoft Surface does very well.
How Mobile Cloud Apps Impact Demand
That being said, Microsoft grew shipments year on year for two-in-ones and tablets, but this was offset by the declining notebook PC market and a change in attitude toward its acquired smartphone business.
Smartphones running Windows fell by 20 percent as Microsoft shifted focus from devices to services during 2015. The future for Windows 10 Mobile is now in question. Canalys believes that Microsoft needs to attract high-profile OEMs and generate consumer demand.
"Creating a premium Surface Phone might generate some buzz about the platform, but it will be risky and repeating what it has achieved in the tablet space will be tough," added Coulling. "It must get OEMs to buy into a platform in decline as well as convince consumers to switch from an iPhone or high-end Android smartphone."