Perhaps no tech company is as recognizable
internationally -- for better or worse -- than Microsoft Corp. (MSFT). The veteran firm's operating systems run billions of
computers worldwide, and it makes the world's second
best-selling video game console to boot.
But where Microsoft has dominated in sales, it's
struggled in expansion and image. Between 1991 and 2001 Microsoft grew 12
fold in revenue. Between 2001 and 2011 it grew only 2.5 times.
Microsoft is facing much the problem of the
British Empire at its peak in the Victorian era -- whither to expand?
Microsoft has found success in the console/video game market, but it's other
efforts -- tablets, smartphones, internet advertising, MP3 players, etc. --
have been money sinks and have failed to generate significant market share.
This struggle has led investors
to forsake Microsoft. The company is expected to report record yearly
revenue of $70B USD and record profit of $22B USD in profit, for its fiscal
year 2011 (calendar Q3 2010 - Q2 2011). Stock prices have only risen 6
percent, approximately during that year, even as profits are expected to rise
22 percent. Perhaps investors are waiting for the actual numbers to land,
but there seems to be a definite antipathetic sentiment when it comes to
That has allowed rival Apple, Inc. (AAPL) to depose it as the
biggest market cap stock in the tech industry. To put that in
perspective, Apple sells fewer products than Microsoft in units. Windows
7 license sales recently hit
400 million for the year, meaning Microsoft likely sold around 200 million
licenses in the last year. Meanwhile, Microsoft is expected to sell around
20-25 million Xbox 360s. Microsoft won't reveal exact Microsoft Office
2010 sales figures, but it's estimated to be in the tens of millions as well.
This stands in contrast to Apple who is on
track to move somewhere around 70 to 80 million iPhones, 15
million Macs, and 35 million iPads for its fiscal year, which ends in
September. In other words, Apple moves about 125 million products a year
give or take a few million, while Microsoft moves roughly two to three times
that. Yet Apple is looking to outpace Microsoft in profits by as much as
Microsoft's underlying issue is that its profit
margins are good, but not great. So even though most people in the world
have access to one of its products, it's still not financially the market
juggernaut some would wish it to be.
And then there's the issue of the perception that
Microsoft is falling behind the curve, in terms of technology. This
perception largely owes to Microsoft widely
publicized internet and mobile device struggles.
Bruce Ventimiglia, Chief Executive Officer at fund
manager Saratoga Capital Management comments in Reuters piece,
"We have concerns about Microsoft. As we look at Google and others
attacking their business lines, our view over the long run is that it's going
to erode margins. Microsoft is not moving as forcefully in the tech space as
we'd like to see."
Such sentiments were echoed by prominent David
Einhorn, who demanded
chief executive Steve Ballmer's head for the
lackluster stock performance. The bid failed -- Microsoft's board backed
Mr. Ballmer and rebuffed
the calls for his resignation. But the challenge put the topic of
leadership change into serious discussion.
Microsoft arguably is the world's most used tech
firm (though Google Inc. (GOOG) and
Facebook could also perhaps lay claim to that title). But investors
are by and large writing it off. As the brutish, brooding divisive chief,
Mr. Ballmer, might echo in the words of late Rodney Dangerfield, "[We]
don't get no respect!"
quote: why investors would rather put the money elsewhere.
quote: No visionaries at the top and a structure hindered by layers of management.
quote: you have a few excellent products like Windows Phone 7 are unfortunate failures of marketing. WP7 deserves to do much better than it is.
quote: Part of Microsoft's problem is that too often they rest on their laurels. After they successfully vanquished Netscape, IE development almost ground to a halt. There was a gap of something like a year and a half in which they released no new features for IE,
quote: If Steve "Chair Chucker" Balmer went away...That said, Microsoft is stuck in a situation of being crippled by world governments because they are as big as they are.
quote: He built the company from two guys in a garage to a multi-billion dollar behemoth. I'm sure he knows what he's doing.
quote: Then why failure after failure in every venture over the past decade?
quote: I could say that Apple and Google are complete failures in the Car segment where Microsoft Sync is dominating but neither competitors have a product in that segment. Yet because Microsoft doesn't have a tablet out yet they are a failure?
quote: I think that what needs to be understood is that Apple's stock, until very recently, has also been held hostage. After rising a great deal, it floundered for months. Why? Because financial people couldn't believe that Apple could keep increasing its sales and profits by 60-80% a year. Nuts, right?So if Apple's stock was stuck at those very high growth levels, which has been even higher the past two quarters at over 80% growth in sales and 90 to 125% in profits, why should MSs' stock get a big lift when they announce a 9% increase in sales? After all, last year MS grew by 8.59%, with a profit growth of about 29.6%. pretty good, right?But Apple grew by 79.3%, with a profit growth of 140.9%, and that was from high levels before.So the real question is why should MS's stock go up by 6% with the relatively meager growth, when Apples' only went up by 2.67%MS isn't getting pounded by the financial people, Apple is.
quote: Microsoft's underlying issue is that its profit margins are good, but not great.
quote: Apples methods to protect itself, anyone that has been around long enough to know their history can understand the beast that they evolved into. It just so happens that that beast is very close to what today’s market is saying it needs in order to come out with the best margins.Microsoft was not pushed the was Apple was as their companies matured. And so, I believe, their current position is very understandable. The thing with that is, some people foolishly thing MS is in a bad position somehow because of this. They aren’t. They need to keep going how they have been. Like IBM has been. Slow and steady boats, my salty friends.If investors want MS to have Apple like sales margins, or whatever, then they will need to hire people that have has experience with companies that were backed into a corner and nearly died. Sadly, if they did that, I think MS would quickly fall into the deep blue seas, as it just wouldn't fit their own corporate evolution.
quote: Microsoft should be a bit more worried than you suggest, their business is hugely dependent on products that are very old
quote: In a way I think Microsoft's success in the past and it's triumph in the old PC paradigm has given it a long easy ride that has let it get unfocussed and a bit flabby. Maybe the rise of Apple, Google, Facebook will truly frighten Microsoft and transform it's culture. They don't have a lot of time, if Windows 8 flops in tablets and WP7 flops in mobile then their star will probably start to fade.
quote: This stands in contrast to Apple who is on track to move somewhere around 70 to 80 million iPhones, 15 million Macs, and 35 million iPads for its fiscal year, which ends in September. In other words, Apple moves about 125 million products a year give or take a few million, while Microsoft moves roughly two to three times that. Yet Apple is looking to outpace Microsoft in profits by as much as 50 percent.