Microsoft's Mobile Ambitions Just Keep Looking Better

The news just keeps getting better for Microsoft as it prepares to take over Nokia's devices and services phone unit. The recent release of Nokia's new phablets that use the Windows Phone OS was ideal timing as the holiday season approaches. As I noted recent recently, with less competition than traditional smartphones, the Lumia 1520 and 1320 phablets offer the both Nokia and Microsoft a ton of upside.

The latest mobile phone sales data from Gartner brings more good news for Microsoft bulls, especially when the research firm's information is coupled with Microsoft's tremendous smartphone OS market share gains abroad. When you put it all together, the stars are beginning to align for Microsoft as it transitions to a mobile device company.

Smartphones still rule
Not surprisingly, the third quarter saw an increasing shift to smartphones, just like the second quarter of 2013. You may recall, the second quarter was the first time smartphones outsold feature phones worldwide, albeit by a rather slim margin of 225 million to 210 million units. The disparity between smartphone and feature phone sales in the third quarter grew to 55%, in favor of smartphones. Of the 455.6 million mobile phones sold last quarter, more than 250 million were smartphones.

The second quarter, even with the strength in smartphone sales, hit Apple  pretty hard. The company saw a drop in overall market share of 4.6 percentage points from the year-ago period, to 14.2%, though it did sell about 3 million more units in the second quarter of 2013 than the prior year.

Unfortunately for Apple, the most recent quarter was also a bit disappointing as buyers waited on its new 5c and 5s iPhones to hit the streets. With about 30.3 million iPhones sold in the third quarter, Apple's market share dropped to 12.1% from last year's 14.3% piece of the smartphone pie. In terms of operating systems, Microsoft was more than happy to pick up some market share from both Apple and the ever-waning BlackBerry.

For smartphones alone, Nokia made a dent. Strong Lumia and Asha phone sales kept the company firmly at No. 2 in overall mobile phone sales with 63 million units sold, and moved it up to eighth overall in smartphone sales. Nearly all Microsoft Phone OS gains were the result of Nokia having a sound quarter, and it appears that trend isn't going to slow down anytime soon.

But for Fools with a long-term perspective in search of a solid growth investment opportunity, Gartner's data revealed something even more enticing as Microsoft prepares to assimilate Nokia's devices and services unit.

Now for the really good news
The Asia-Pacific region led the way in smartphone sales growth, up a whopping 77.3% compared to last year. That's good news as Nokia slowly gains traction in the market, particularly in China, after partnering with its largest mobile carrier, China Mobile. But the icing on the cake was improved sales in Western Europe which, according to Gartner, increased in the third quarter for the first time all year.

What makes the European sales results so important for Microsoft is combining Gartner's data with the recent news from research firm Kantar Worldpanel shows the huge strides Microsoft's Phone OS is making in the region. In five of Europe's biggest markets -- Italy, Spain, France, the U.K., and Germany -- the Windows Phone OS more than doubled its market penetration in the third quarter compared to last year.

Just how big were Microsoft's OS strides? Last year, Microsoft Phone held a marginal 4.6% of the OS share, compared to Apple's 16.8%. Now, with 9.8% of the smartphone OS market combined in those five countries, Microsoft continues to trail Apple's 14.6%, but the gap is closing fast.

If you thought things were looking up for Microsoft in the devices business, you were right. But with a forward P/E under 13, the potential in the phablet market, and the smartphone stars aligning in Western Europe, Microsoft bulls have even more to feel good about.

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Fool contributor Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Apple and Gartner. The Motley Fool owns shares of Apple, China Mobile, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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