Apple could gain ground over Microsoft Windows with M2 chips

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

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

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

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

Kitagawa said an updated forecast that is likely to make Apple’s performance look stronger will come out in the next few weeks.

Apple’s Mac business is being buoyed by new devices using proprietary chips to replace Intel processors. 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 aimed at 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 have skyrocketed. Apple’s Mac business grew 23% in fiscal 2021 to over $35 billion in revenue. In the March quarter, Mac sales rose more than 14%, a faster increase than any of Apple’s other hardware categories. Apple CEO Tim Cook told analysts in April that “the incredible customer response to our M1-powered Macs helped sales grow 15% year over year 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 accounts for 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 being lost in the market,” said Brad Brooks, CEO of cybersecurity startup Censys and former corporate vice president for Microsoft’s Windows consumer business.

Most revenue from Windows licenses for device manufacturers comes from commercial customers. Brooks said Apple is making strides with consumers, and he learned during his nine years at Microsoft that there’s a positive correlation between consumer usage and what’s happening 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 professional environment,” Brooks said, speaking of the business leaders who make technology purchasing decisions.

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

Businesses were reluctant to adopt Apple’s M1 computers, fearing key applications would not be compatible. But Adobe, Microsoft and other developers have gradually released native versions of their software for the devices, said Kitagawa, who now expects enterprise adoption to increase.

Patrick Moorhead, CEO of industry research firm Moor Insights and Strategy, said Windows PCs could eventually have battery life and performance to rival Apple’s latest Macs. Among the chipmakers that use them, “it’s closer right now between Apple and AMD than it is between Apple and Intel,” Moorhead said.

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

“A MacBook SE at a much lower price point would be quite disruptive to Windows,” Moorhead said.

Microsoft did not respond to a request for comment.

— CNBC’s Kif Leswing contributed to this report.

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