In our In Focus article above we talked about how Ford and General Motors (GM) would dominate auto production in the prior tech wave. Ford took the early and almost fell apart completely as it continued to build the Model T long after new markets had been created by GM. Farmers liked the indestructible Model T, but the quickly expanding middle class moved on to Chevrolet and other GM products.

We review this because in the Tech industry it is almost unheard of to come back from a near death experience. It is almost always the case that once a company falls behind it falls all the way off the map the way Blackberry (NSDQ: BBRY) has been going for the last few years. Blackberry, like Nokia (NYSE: NOK) and many other tech companies, is the rule.

But just as the prior wave had its exception to this rule – Ford – the exception for the current tech wave is Apple (NSDQ: AAPL). Both were passed by and then came back very strong, eventually becoming industry stalwarts. So what about Microsoft (NSDQ: MSFT)? It stumbled badly under the Balmer era and honestly looked like it was headed the way of Packerd Bell. Packerd Bell was the first company to sell IBM plug-compatible PCs in retail stores like Sears. They were number one until another low cost maker showed up and quickly knocked them out (Dell).

Microsoft was the low cost competitor in the PC wars. Apple’s PCs were always more stable but definitely pricier. With Apple coming to dominate smartphones, Microsoft was looking more and more like the next big tech looser. And then suddenly, they weren’t. They have continued to rake in the cash and enable their ability to innograte. But it really is more than that.

I have heard opinions from industry analysts saying that they even think Microsoft will move past Apple in three to four years. Of course, in the tech industry four years is a lifetime but let’s look at why some are beginning to believe this will come to pass.

Microsoft has completely taken Blackberry’s market share away in 2013. Furthermore, Microsoft has shown strong growth abroad in 2013 as the less expensive smartphone maker. In Germany their market share increased by 3.8% while in Great Britain it jumped by 5.7%. Mostly at the expense of Blackberry, but growth is growth.

The growth in Europe is coming at a good time for Microsoft as Samsung is taking it on the chin in court from the Apple lawsuits over patent infringements. The only place Samsung has won a case is at home in Korea. After the verdicts are all rendered and appealed, Samsung is going to lose functionality as these patents are enforced. Ironically, we think they already are by having moved to an Open Source operating system for their phones. This was likely in response to having to drop all patent infringements.

I think the Europeans will likely move towards a Windows phone and away from the Android operating system. I agree with the pundits that it will take a few years, but I don’t think Microsoft will leapfrog Apple. I think Microsoft will slowly pass Samsung for the number two spot. And as we saw with Ford in the prior wave, number two is still a major money-maker for investors.

The pundits also point to the possibility of Microsoft winning in China, but we don’t agree. Lenovo is already making smartphones customized for the Chinese market. With Lenovo’s acquisition of Google’s Motorola assets their competitive posture will increase – not decrease. China will go for Lenovo in a huge way and already Baidu, Tencent and Alibaba feature Lenovo’s smartphone, called LePhone, in their mobile offerings. 

A mobile analytics service horribly named Boopsie has declared that the Windows phone will be the next big thing [as a side bar, can serious tech companies finally learn to resist the urge of giving serious companies idiotic names?] They state this conclusion is founded on the Microsoft ecosystem of applications for their Windows phone. Boopsie is seeing a trend towards increasing downloads of Microsoft Windows phone oriented applications. Is Boopsie wrong just because they are stupidly named company? Not likely.

Microsoft does not have to be number one in smartphone sales to be a solid investment return. Just look at the growth in the value of their stock in the last year; it has nearly doubled. The answer as to why is the same answer as to what the future holds for Microsoft. They will reinvigorate themselves as one of the big two or three providers in mobile tech.

Microsoft’s Cloud offering called Azure is growing exponentially. True, they were both late and left footed in their initial move into the Cloud but they know it and are working to correct it. The accession of their Cloud executive to CEO makes this point loud and clear.

Microsoft office has been a major cash cow for the company for over a decade. One of the largest hurdles they faced was how to migrate office into mobile network world. Well, the results are now in and Office 365 is doing very well and is considered a success.

The reason for the success of Office 365 is due to Microsoft’s Yammer and SharePoint products. These products add network access and ability to share documents which have moved Office 365 into not only market relevance again but the top spot to boot. We still use the latest Office products from Microsoft because they are better than the freeware and the cheapware competition.

We at STI see the striking symmetry in the prior tech wave and the current one in the Mobile sector. Microsoft, like Ford, will return to the freeway after returning from a decade long detour towards tech oblivion.    

We continue to strongly recommend buying Microsoft up to $42.