Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Microsoft Ready for a Rebound on Mobile Revolution?

Companies / Microsoft May 26, 2011 - 10:36 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleDavid Zeiler writes: There are monopolies. And then there's Microsoft Corp. (Nasdaq: MSFT).

With its Windows operating system installed on virtually all of the world's PCs - the market share peaked at about 95% - Microsoft became synonymous with the personal computer revolution.


And it didn't stop there. After locking up the operating-system market, Microsoft did nearly the same thing in the applications market with its Office suite of productivity software.

The breathtaking margins - 85% for Windows and 79% for Office - combined with the explosive growth of the PC market sent Microsoft shares on a 9,000% ride during the 1990s.

So dominant was Microsoft that it drew the attention of government anti-trust watchdogs in both the United States and the European Union (EU). The lawsuits, designed to curb the Redmond, WA-based tech giant from bullying smaller rivals, did little to slow down the Microsoft juggernaut.

But Microsoft's mastery of its markets and the slowing growth rate in the PC market that followed the "dot-bomb" implosion of 2000 ended the years of eye-popping increases. The decade that followed taught Microsoft investors a very hard lesson: The market doesn't reward companies that rake in profits but show only modest rates of growth.

From 2001 to 2011, while the tech-heavy Nasdaq Composite Index has gained 34%, Microsoft shares have plunged 25%. In just the past year, while the Nasdaq has surged 20%, Microsoft shares have declined some 16%.

"Microsoft got huge and failed to deal with the consequences," Paul Allen, a company co-founder, wrote in his recent book "Idea Man."

From PC Potentate to Mobile Misfit
Microsoft has also failed to deal with two major market changes that directly affect both its business, and its market position. We're talking, of course, about the slowdown in the PC market - and the shift toward the mobile Internet.

The stalling PC market has a direct impact on the sales of Windows and Office, the dynamic duo that powers Microsoft's profits and share price. According to stock-analysis firm Trefis, Windows accounts for 39.6% of the stock price, and Office 35.3%.

When Microsoft revealed last month that Windows sales had slumped 4% in the most recent quarter, the stock slid another 3% despite a 19% rise in profits (excluding a one-time benefit from a settlement with the Internal Revenue Service).

"Even though they had good earnings, the PC market is under scrutiny and there continues to be uncertainty on whether or not Microsoft can compete with the growing tablet and handheld devices from the likes of Samsung and Motorola," Joe Cusick, senior market analyst at Chicago-based online brokerage firm optionsXpress (Nasdaq: OXPS), told Reuters.

Researcher Gartner Inc. (NYSE: IT) said that first-quarter PC sales were down 1.1% from the same period last year.

The shift toward mobile computing - driven by the growing consumer adoptions of smartphones and "tablets" such as the Apple Inc. (Nasdaq: AAPL) iPad - is blunting the demand for PCs.

"Weak demand for consumer PCs was the biggest inhibitor of growth," Mikako Kitagawa, a principal analyst at Gartner, said in a statement. "Low prices for consumer PCs, which had long stimulated growth, no longer attracted buyers. Instead, consumers turned their attention tomedia tabletsand other consumer electronics."

Even those who disagreed tablets were responsible for the decline - The NPD Group Inc. says PC sales seem to have dropped because of unusually strong sales in the year-ago period - acknowledge the looming mobile-computing threat.

"The big challenge for [PC manufacturers] going forward with the iPad is for that second or third computer in the house," NPD analyst Stephen Baker told Computerworld. "In the next six to 12 to 18 months, as consumers think about replacing the rest of their installed base of older PCs, people are going to start asking, 'What's right for me, another PC or a tablet?' That should give anyone in the PC business cause for concern."

And that's just the half of it. Consumers also are increasingly using their smartphones for such low-level-computing tasks such as e-mail, social networking and Web browsing.

Mobile computing is clearly the new mother lode of high-tech-sector profits, but Microsoft has been unable to stake its claim.

Windows runs fewer than 5% of smartphones and almost no tablets. Operating systems from such Microsoft rivals as Apple (with its iOS operating system) and Google Inc. (Nasdaq: GOOG) (which markets the Android OS) are currently dominating the mobile OS market.

The shift toward mobile devices already has reached a tipping point. Consulting firm Deloitte LLP has projected that 2011 will be the first year that the combined sales of tablets and smartphones will exceed those of laptops, desktops and notebooks.

And the trend could well spread beyond the consumer realm and into the enterprise market - Microsoft's most cherished turf. Last year, Apple reported that in excess of 80% of Fortune 500 companies were deploying or testing the iPhone; more than 65% were deploying or testing the iPad.

It's called the "consumerization" of IT: Workers are bringing the devices that they use at home into the workplace, and then are asking to have those devices incorporated into the company network. If companies adopt non-Windows-powered tablets in significant numbers, Microsoft will have to waste resources defending a core market.

Cloud computing adds to the threat, as companies also may decide that the free, available-from-anywhere Google Apps can replace Microsoft Office. That's no small worry - particularly since companies are beginning to use large numbers of mobile devices.

One Misfire Follows Another
The inability to deal with the mobile threat to its key franchises is actually symptomatic of a more basic - but critical - problem facing Microsoft.

Microsoft management has tried - and failed - for years to answer a single question: How can we grow the company past its Windows-Office profit machine?

Just about every attempt to answer that question has ended in failure. For instance:

•Its best effort, the Xbox gaming division, does make money - but not enough to move the growth needle inside a company that generates more than $5 billion in revenue per quarter. Microsoft's Entertainment Division, which includes the Xbox, made a $225 million profit for the March quarter.
•In 1997, Microsoft bought WebTV, a set-top box that provided Internet access via a user's TV. The product struggled for years; sales of the hardware were finally halted in 2009.
•The online division, which includes the MSN portal site, aQuantive Web advertising and Bing search engine, perennially loses money - including a loss of $726 million in the most recent quarter alone.
•The Zune MP3 player - despite being a very good product - struggled against Apple's iPod, and never got more than 3% of the market.

Reports earlier this year claimed Microsoft will produce no more new versions of the Zune. And Microsoft found once again that "me too" products won't clear the bar in a discriminating market.

Microsoft's track record in the vital mobile-computing sector is no better, in spite of the billions of dollars spent on research and development.

It had a tablet PC as far back as 2001, but their swivel keyboards and stylus-based interfaces were awkward to use. That, and the general unavailability of Wi-fi back then, doomed the early Windows tablets to niche status.

Manufacturers of the more recent iPad-style media tablets have preferred Google's Android over Windows 7. The Honeycomb version of Android has a better touch interface than Windows. Besides, it's free.

Even in smartphones, the story is similar - years of effort with scant results to show for it.

Microsoft developed its first phone-specific operating system, Windows CE, 15 years ago and collaborated with HTC Corp. on an early Windows smartphone, the Orange SPV, in 2002.

But market share for Windows among phones peaked at about 23% in 2004, and has fallen every year since. Last year, it dropped to 4.2%.

Microsoft also tried to buy its way to smartphone success by acquiring the mobile-computing software-and-services company Danger Inc. in 2008. The fruit of that acquisition, the Kin phone, debuted in May 2010, but was discontinued less than two months later due to poor sales.

Although partner Verizon Communications Inc. (NYSE: VZ) revived the Kin as a low-cost "feature phone" in November, Microsoft refocused its energies on Windows Phone 7. Released last fall, Windows Phone 7 was supposed to revive Microsoft's smartphone fortunes, but hasn't made much of a dent in the market.

Three Moves Aimed at a Mobile-Market Victory
Microsoft leaders still hope to pull off a win in the mobile-computing market.

In the near-term, Microsoft is banking on a deal with Nokia Corp. (NYSE ADR:NOK), announced in March, that will put Windows Phone 7 on Nokia smartphones.

Gartner and IDC both predicted last month that the Nokia deal would deliver about 20% of the smartphone OS market to Microsoft by 2016, but even 20% is nowhere near the 95% Microsoft once enjoyed in the PC market.

And some say Microsoft will be hard-pressed to get even 20% of the market.

"Windows Phone 7... which shipped in two million handsets in Q4 2010, will have to find incredible success through its Nokia channel to take more than 7% of the market by 2016," scoffed ABI senior analyst Michael Morgan.

Microsoft also has made some dramatic acquisitions, most notably its recent $8.5 billion purchase of Skype, to somehow get traction in mobile computing by integrating well-regarded technology invented elsewhere into its Windows products.

It's too soon to tell if adding the Web-calling capabilities of Skype will make any measurable difference, but previous acquisitions haven't had the desired results.

However, there is hope for some for success in the mobile-computing success with Microsoft's Windows 8, which the company says will be optimized for tablets. A recent Forrester Research Inc. (Nasdaq: FORR) survey showed 46% of the U.S. consumers queried wanted Windows on a tablet. Only 9% of the U.S. consumers queried said they wanted Android, and 16% preferred Apple.

Microsoft could be a force in the tablet market if it gets Windows 8 right, but that OS upgrade won't be released until the latter part of 2012 - more than a year from now.

Given the likelihood of a gradual erosion of the PC market, Microsoft needs to come up with an effective mobile strategy soon, or it could face the only thing worse than stagnation - contraction.

And investors would definitely not react well to that.

"The biggest overhang on the stock is they're losing share to tablets and they don't have an answer to that," Yun Kim, an analyst at Gleacher & Co. Inc. (Nasdaq: GLCH) in New York, told The Seattle Times. "They're trying to survive in a new era where it's a post-PC era."

[Editor's Note: "Leaders to Laggards" is a Money Morning special report that makes an in-depth assessment of the financial outlooks for Intel Corp. (Nasdaq: INTC), Cisco Systems Inc. (Nasdaq: CSCO) and Microsoft Corp. (Nasdaq: MSFT).

It appears in four parts.

The overview story appeared on Monday. The Intel analysis was published Tuesday. Our Cisco story ran yesterday (Wednesday). Today's Microsoft analysis brings this part of the series to a close.

Money Morning intends to continue this as an occasional series going forward, adding updates on Intel, Cisco and Microsoft, and perhaps also looking at other such firms as Nokia Corp. (NYSE ADR: NOK).

If you have comments on the series, or suggestions for additional "leaders to laggards" companies to look at, please feel free to drop us a line at mailbag@moneymappress.com.]

Source :http://moneymorning.com/2011/05/26/...

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in