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Windows 7 licenses are selling at a record pace, driving Microsoft to its highest profits ever...  (Source: Oli Scarff/Getty Images Europe)

...but Microsoft's stock is languishing. Some investors are even calling for chief executive Steve Ballmer's (pictured) resignation.  (Source: Reuters)
Company struggles to find love from investors, even as it is a huge market hit

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 Microsoft's stock.

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 50 percent.

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!"



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I'd be happy
By borismkv on 7/20/2011 6:03:19 PM , Rating: 5
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. Every time they've attempted to use their corporate muscle in the past it's resulted in billion dollar fines from the EU and others. Then there's the fact that Piracy hits their bottom line *much* harder than, say, Apple.

Apple is smart to pack the margin on their OS into an inflated hardware price that they can control, as it makes piracy much more difficult. That and almost all of the reasons for buying an Apple hover around the perception of their devices.

Microsoft, on the other hand, has a much *much* better range of software offerings, particularly in the business space. What's going to cause them a lot of grief in the future is their asinine licensing system. You almost need a crystal ball and a deck of tarot cards to figure out how much you're supposed to pay Microsoft to use Windows Server/Exchange/etc in your business.




RE: I'd be happy
By icanhascpu on 7/20/2011 6:16:29 PM , Rating: 5
*Magic 8 Balmer Says*

Signs point to developers developers developers


RE: I'd be happy
By Kiffberet on 7/21/11, Rating: 0
RE: I'd be happy
By BSMonitor on 7/21/2011 9:43:55 AM , Rating: 2
Apple pays no regular dividend. Windows sells more copies of software than anything on the planet. Quarter after quarter. You sir are a bandwagon-er. Talking out of your arse.


RE: I'd be happy
By Laereom on 7/21/2011 1:04:22 PM , Rating: 2
Just because Apple's stock is immensely irrationally highly priced, doesn't mean Microsoft is entitled to the same.

From the perspective of a value investor (which is all a non-sexy company like Microsoft is going to attract), a 2-3% dividend yield is pretty miserable, especially when there are plenty of blue chips out there with much brighter prospects, better current financials, and better dividend yields.


RE: I'd be happy
By TakinYourPoints on 7/21/2011 3:08:01 PM , Rating: 2
I don't see how AAPL is irrationally priced. Growth is still doubling YoY while their gross and net revenue (the gross being double Microsoft's with no slowdown) justifies their market cap relative to other tech companies out there.

The stock has actually been undervalued for the last year or so. The PE and PEG ratios have been surprisingly low, no doubt held back by general fear in the markets. There are other techs that are inflated, and AAPL isn't yet one of them.

The price will settle once their ceiling for growth appears.


RE: I'd be happy
By mondo1234 on 7/21/2011 9:33:19 PM , Rating: 2
I will take a growing stock over a dividend stock any day. The dividend is probably what is keeping some investors from selling.


RE: I'd be happy
By Mitch101 on 7/21/2011 9:45:00 AM , Rating: 3
WHAT?

Tulalip
Skype
Microsoft Lync Online
Office 365
Nokia Launch of Windows Phone 7
Windows 8 Tablet which Microsoft makes the OS has no risk as it doesn't make the hardware if you seen the demos its hot.
Visual Studio LightSwitch 2011
Bing is gaining ground
Microsoft Denali (SQL)
Microsoft X-Box 360 sales still high Developers working on 720.
Kinect Fastest selling device of all time.
Rumored Microsoft Office for iPad and Playbook. - Try living without office its the number one request for iPad owners in corporate world.


RE: I'd be happy
By ClownPuncher on 7/21/2011 11:13:07 AM , Rating: 2
But BESIDES those billions of dollars worth of products, what else do they have? ;)


RE: I'd be happy
By Mitch101 on 7/21/2011 11:44:25 AM , Rating: 4
Funny you should ask.
$5.00-$15.00 per Android device sold and MSNBC


RE: I'd be happy
By Nutzo on 7/21/2011 6:01:38 PM , Rating: 2
I wouldn't consider MSNBC a plus.


RE: I'd be happy
By Kiffberet on 7/22/2011 8:38:02 AM , Rating: 2
Sounds great on paper, but doesn't explain why the stocks are only up 6% or why investors would rather put the money elsewhere.


RE: I'd be happy
By tng on 7/22/2011 9:18:03 AM , Rating: 2
quote:
why investors would rather put the money elsewhere.
Because most the group of investors out there are professional investors that work for brokerages, banks, etc.... Being a professional investor means that you know investments and maybe not what the company that you invest in really does.

For instance, Wall Street labels EBay and Amazon as "Tech" stocks, but really, are they? EBay is a giant internet flea market and Amazon is like the Wall Mart of the internet, just because you use a computer to access them does not mean they are "Tech".

Places like Microsoft, Intel, Dell, Apple, etc... that acutally produce something in the "Tech" sector are lumped in with places that are just internet businesses, so if Amazon has a tough year and losses money, Microsoft takes the hit as well along with a dozen other companies that are doing just fine.

It boils down to the fact that Wall Street does not know what they are doing when it comes to tech, so MS will continue to suffer.....


RE: I'd be happy
By TakinYourPoints on 7/20/2011 6:48:56 PM , Rating: 5
I'm not sure if a new CEO can help. No visionaries at the top and a structure hindered by layers of management. They have world class R&D and extremely talented engineers, but outside of the XBox they can't manifest that R&D into actual products that people would find desirable or useful. The rest of the time is spent copying Apple and Google, and then you have a few excellent products like Windows Phone 7 are unfortunate failures of marketing. WP7 deserves to do much better than it is.

That said, they are very very good at their core competencies: Windows, Office, and backend enterprise software. A stagnant stock price and inability to break into other spaces doesn't change the fact that they are still insanely profitable and will continue to sell these products.


RE: I'd be happy
By AstroCreep on 7/20/2011 8:16:36 PM , Rating: 2
quote:
No visionaries at the top and a structure hindered by layers of management.


No visionaries because Balmer chased them all away...Muglia, Ozzie, Bach, Allard, et al.


RE: I'd be happy
By snakeInTheGrass on 7/21/2011 1:10:06 PM , Rating: 2
"Between 2001 and 2011 it grew only 2.5 times."

Yep, and inflation adjusted, it grew only about 1.0 times? The stock has priced in Ballmer's visionary genius - nobody expects any meaningful earnings growth, so figure in dividends and fairly stable revenue, and there you have it. If they want to grow their stock, they should look for some vision like that of the company that Mick loves to hate. :)

(And Ballmer has demonstrated himself as NOT the man to do that. "Huhuhuh, yeah, like anyone is going to pay for something nicer!" Yes, a**hat, they actually will.)


RE: I'd be happy
By Alexstarfire on 7/21/2011 3:05:28 PM , Rating: 2
Not sure what the inflation rate has averaged over the last 10 years but it'd have to be somewhere around 10% for what you say to be true. That said, IDK if they already take inflation into account. Even if they don't it's probably somewhere in the ballpark of 1.75 growth after adjusting for inflation.


RE: I'd be happy
By snakeInTheGrass on 7/21/2011 3:53:14 PM , Rating: 3
I guess the question is which inflation, the low figures the Fed makes up (much like unemployment numbers have had the metrics adjusted repeatedly, keeping 'unemployment' really low), or the ones based on actual costs.

A barrel of oil went from $18.5 -> ~$100, the lowest it's seen since the mortgage crisis is over double where it was in 2001. (About a 5x rise)

Gold went from $~260 to ~$1600 and oz. (About a 6x rise)

The average car price went from $24,000 to $25,000 (one of the few figures that didn't rise substantially).

The FAO Food Price Index went from 93 in 2001 to 185 in 2011, or a 99% increase.

Health care I don't even want to guess, but I know I've been hit with 20%+ premium increases year after year.

Median home price went from $119,600 in 2000 to $170,500 in 2009 (didn't see the 2011 figure, but it's in that ballpark) - and that's a 43% increase. So that's AFTER the 'correction' - still probably too high, certainly when compared to salaries.

Oh, speaking of which, median household income remained essentially unchanged.

The inflation numbers the government floats aren't based on oil, food, and largely pass over housing, looking instead mostly at rent, as those are all 'too volatile'. Now currently housing would apparently have caused 'deflation' if included over the past few years, which they don't really want to tout either, but over the decade that certainly wouldn't be the case. :)

Wall St. growth was flat until the 70's when we cut our monetary policy loose from gold - and the 'growth', whether increasing commodities prices or stock prices or interest paid out from bonds, etc., is mostly just our dollars falling dramatically. Just Google around a bit - look at the graphs of pretty much every index around. There's a reason they all curve up dramatically over the past 40 years, and that reason isn't because we've magically created all sorts of new wealth.

Considering that the Fed has doubled the amount of $ currency in circulation in the past few years, I'm not waiting for any of that to improve. The worst thing you can hold is dollars, and bonds at a low rate are just marginally better. Stocks of multinationals are reasonably insulated from these effects, as are commodities - and ALL of them are subject to speculation just like housing was.

However, we need to devalue if we're going to ever pay off the debt we've run up, so it's a double-edges sword. And just a mess.

Anyway, just saying that Microsoft needed to do more with earnings to impress over the past decade, though to be fair to them, the stock should have roughly followed the earnings, and if it hasn't I'd still blame Ballmer because of his negative impact on the speculative side of the stock equation - because he doesn't inspire confidence in investors any more than amongst techies.


RE: I'd be happy
By Solandri on 7/20/2011 8:52:56 PM , Rating: 3
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.

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, only security patches. That's what gave Firefox the opportunity to slip in and begin eating away at IE's market share.

Same for WP7. When Palm stumbled and Blackberry was limited to mostly email on your phone, WinCE/Windows Mobile was pretty much the only game in town if you wanted a PDA/phone as powerful and flexible as your computer. That's when they should've started working on many of the features in WP7. But again, they rested on their laurels. Apple swooped in, with Google close behind. By the time Microsoft could push WP7 out the door, it was too late - the battle lines had already been drawn between iOS and Android.

Contrast this with their Office suite. They're constantly adding and improving it, frequently to the consternation of their users. But as a consequence, they still hold an untouchable lead in the Office suite market.


RE: I'd be happy
By tng on 7/21/2011 11:21:39 AM , Rating: 2
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,
While I agree that it looks that way, I think that the problem is that MS has just become to big to respond quickly. If something is not in the plan when a product is launched, and is a mistake, it takes to long to change it, to many people have to sign off on it.

WP7 could be big, but there has been very little advertising of it compared to daily commercials for Apple or Android, I have seen very little advertising for WP7. I am betting that they had a budget for promotions and now that that is not enough it will be difficult to get more money to do more. To many layers of approval.

Face it small companies are more agile. They would be better if Ballmer micromanaged everything like Steve Jobs does at Apple.


RE: I'd be happy
By NellyFromMA on 7/22/2011 9:14:08 AM , Rating: 2
Do they need to respond quickly? Like any tech company, the longer it is around, the less nimble it can be when decisions are far from their current offering.

One of, if not THE, greatest features of Windows is legacy support. This is not magic, they must maintain this compatibility. It is exactly why Apple can grow market share, but not penetrate Microsofts. Apple isn't really wooing away PC users. It's selling high-profit items to the more general consumer, and largely they are iphones ipods and ipads. The computers and laptops do provide HUGE profits for them as well, but again, they aren't selling those to mant PC converts.

In the next 3-5 years, we'll have a chance to judge MS's response, but historically, the familiarity of Windows for business use and its interoperability/legacy support is exactly why it doesn't have to respond to every little taunt; It's users simply can't afford to jump on every bandwagon there is and gamble there company's futures on emerging, but not new, technologies just for the sake of being different.


RE: I'd be happy
By spread on 7/20/2011 7:11:27 PM , Rating: 4
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.


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.


RE: I'd be happy
By Taft12 on 7/20/11, Rating: 0
RE: I'd be happy
By StevoLincolnite on 7/21/2011 12:29:02 AM , Rating: 2
quote:
Then why failure after failure in every venture over the past decade?


But every venture hasn't been a failure.
Take a look at Kinect, it was the fastest selling device ever made. (8 million units in 60 days according to the Guinness World Records)


RE: I'd be happy
By Mitch101 on 7/21/2011 11:24:37 AM , Rating: 2
I dont get it either Microsoft has been putting out some of the best products ever but because they dont dominate the Phone and Tablet markets yet Balmer is a failure? If there is one thing Sony/Nintendo will tell you is dont count out Microsoft and everyone knows Microsoft eventually gets it right. It used to be wait till third generation Microsoft but it seems that Microsoft gets it on the second try now.

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? I dont count the Microsoft phone because I believe it was released a little early and will reserve judgment on Microsoft Phones when Mango/Nokia arrive in force.


RE: I'd be happy
By TakinYourPoints on 7/21/2011 3:01:41 PM , Rating: 2
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?


One is insanely popular and profitable and the other isn't.


RE: I'd be happy
By AstroCreep on 7/21/2011 11:15:11 AM , Rating: 2
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.

Meh...I wouldn't say he "Built" it; Gates "Built" it. Balmer was really nothing more than a good "sales guy" who was handed the reigns in 2000 when Gates decided it was "Time for a change" near the end of anti-trust proceedings. And it's arguable that Balmer deserved the title, as it's been suggested he received it simply because he is/was so close with Gates.


RE: I'd be happy
By kleinma on 7/20/2011 7:59:26 PM , Rating: 4
Balmer is way smarter than most give him credit for. Just because he has a certain demeanor that is not usual of most CEOs (let alone the CEO of one of the biggest companies in the world) doesn't mean he doesn't know what he is doing or about the tech world.

There is a major cross roads in computing right now, and Apple (and google) are able to capitalize on the people who want to try something different right now. That mostly stems from the fact that nearly all the people jumping on the other OS bandwagon are upgrading from Windows XP or older machines and don't understand how much different and better Windows has become since. Shit, half the people I see using Win 7 have no idea the start menu has search built in, no idea how cool snap is or even how to use it (except when they do it by mistake), generally no clue how to operate the damn thing. They get frustrated with it because they have no desire to know how it works. So Apple with its super simplicity and limited choices appeals to those people who really only care about consuming and producing media. Viruses and vulnerabilities in the OS are not a talking point anymore for Apple. Their OS and browser is far, far less secure than modern Windows, and will be exploited in due time, which is why they are walling up even further with an app store that will have an approval process. I guarantee within 1 or 2 more OS releases, they will not support apps from outside the app store.

It is pretty clear though, neither Apple nor Microsoft are going anywhere anytime too soon. Windows 8 is looking pretty good, and there is still a near infinite number of programs that run on Windows versus the Mac. Especially in the enterprise.


RE: I'd be happy
By wordsworm on 7/21/11, Rating: -1
RE: I'd be happy
By R3T4rd on 7/21/2011 9:32:14 AM , Rating: 2
No..no..no. The question is:
What Software are "YOU" talking about? ("You" as in you wordsworm.) So please share this good software you are using that makes MS Office "OK" and "Subpar"....I hope its not Open Office. Last time I checked all of Fortune 500 companies use MS Office products.

As far as stealing products. Give me 30mins - 2hours to download any Mac Software with Serial/Crack/KeyGen/etc., from torrent sites and various other peer to peer programs. Yup, latest versions too. Wow, that was just as easy as finding any MS Software, Adobe Software, etc.

Your comments are ludicrus.


RE: I'd be happy
By wordsworm on 7/21/2011 8:59:47 PM , Rating: 2
It's harder to steal a computer, iPad, or other physical product out of a store than it is to download and use warez files. Most of Apple's income comes from physical products rather than software. Most of Microsoft's income comes from hacked software which is then easily stolen and distributed across P2P and other file sharing methods. That seems pretty common sense, but maybe spelling it out for you will help.

As to their software, seems that Linux is better than MS when it comes to server software. Open Office is just as good as MS Office, but it's free. Professional software comes from Adobe, not Microsoft. Power Point is inferior to Flash. Publisher is a joke compared to InDesign. Microsoft's Paint program is retarded compared to Photoshop. Even GIMP is better. So, yeah, MS products are subpar. For the most part, there are free alternatives out there which are just as good as the MS version. Some of them are even better than MS's versions (like Open Office). Media Monkey is better than MS's Media player for music, VLC works better for videos. Even customer service at Open Office is better than at Microsoft. Once I reported a bug, and the next day there was a reply and a fix. That's right, better service from a company that offers free software. Go figure!

I suppose you can continue to play dumb, but those are the facts.

Quite frankly, unless MS manages to turn around, their best days are behind them in terms of having a near monopoly.


RE: I'd be happy
By R3T4rd on 7/22/2011 5:35:34 AM , Rating: 2
Lets see, you stated "easier to steel MS products"...MS = Software...."than it is to steal Apple Products".....Apple software...Apples to Apples.

Same can be said about MS Products then if you want to go hardware route. Its harder to steal an Xbox, Zune, etc.

Sure most of Apple's income is based of its hardware and sure you cannot steal it as easy but why is MS still making soo much money when thier software are the most pirated? Income is irelevant. Compare apples to apples. Software to software...hardware to hardware. Both MS and Apple's Software can be esialy attained. Hardware wise...you are correct - its hard to steal thier hardware.

As for software being subpar, you haven't said anything with merit. Sure all those software are good and better for you and the technically savvy. Do you work in a enterprise environment? Why don't you try to order 5000 licenses of Adobe CS3 (something)and teach 5000 employees to use it. Flash try to teach 5000 Enterprise employee to use it...same for inDesign, Photoshop, etc. Media Monkey, VLC Player....etc., - try getting license approval for 5000 machines heck everything you mentioned needs a license. And finally OPEN OFFICE, granted its a good tool and this is where "Students" only should be using but in "PRODUCTIVITY", falls behind MS Office by light years. There's more MS Office can do than Open Office. Ask anyone who uses both.

All you have managed to say is that there are better software for "you". But, in reality, Enterprises and big companies beg to differ. And from that, it sounds like you wouldn't know. God help if you were a fortune 500 IT Director, you'd run your company to the ground.


RE: I'd be happy
By wordsworm on 7/22/2011 7:04:23 AM , Rating: 3
I never said it was easier to 'steel' MS products. I said, 'steal.'

MS's revenue is mainly from software, while Apple gets a lot of its money from hardware. We're talking revenue streams, not apples and oranges. It's OK to compare apples and oranges when it comes to figuring out which fruit makes the most money.

There are enough people learning how to use Open Office. Entire governments are starting to make the switch. So, lets get real here. You don't need a license to get 5,000 copies of Open Office. It's free. For publications that warrant the expense and effort to make them look really professional, you have to use a professional product like what Adobe offers.

You're right, I probably run a company into the ground if I was the head of its IT. But many IT directors are moving to open source software. Open Office, for instance: http://wiki.services.openoffice.org/wiki/Major_Ope...

Lots of IT directors must be involved in all those deployments. MS Office is a big waste of money at this point. People are starting to realise this.


RE: I'd be happy
By masamasa on 7/21/2011 4:20:54 PM , Rating: 2
"Microsoft, on the other hand, has a much *much* better range of software offerings, particularly in the business space. What's going to cause them a lot of grief in the future is their asinine licensing system. You almost need a crystal ball and a deck of tarot cards to figure out how much you're supposed to pay Microsoft to use Windows Server/Exchange/etc in your business. "

You hit the nail on the head. Their licensing model is bizarre and overcomplicated. Business rule #1. Make it easy for the customer or prospect to do business with you.

Maybe investors are still remembering the horrors of Vista. =P


thought
By p05esto on 7/21/2011 8:43:49 AM , Rating: 3
Just my 2 cents, but I use MS products every single day (Win7, Win2008 Server, SQL database, Visual Studio, Expression Web, IE9, Office Suite and sometimes Xbox).... I don't use any Apple, Facebook products, sometimes I do a Google search. These articles make me laugh, I mean MS is everywhere and I touched on only a few of their offerings, in the business world they own.

They are making money hand over first and frankly the fact that Apple charges so much for their products and such a larger profit margin only speaks to their greed.




RE: thought
By TakinYourPoints on 7/21/2011 2:59:33 PM , Rating: 2
You think that Apple, a hardware company, has higher profit margins than Microsoft, a software company?

In their last quarter MSFT made $16 billion gross revenue with net income of $5 billion, while AAPL made 28 billion gross revenue (double Microsoft's) and about 7 billion in net profit. Microsoft's profit margins are significantly higher than Apple's, given that Apple needs to make double the gross revenue to beat their profit by roughly 30%.

Look at their respective gross and net revenues instead of posting based on emotion.


RE: thought
By dlapine on 7/21/2011 4:41:30 PM , Rating: 2
So you're saying that Apple had net profits 40% higher than Microsoft($7B for Apple and versus $5B for Ms)? Perhaps that fact alone would explain all the investor love for Apple.

It's not always about margins, sometimes it's the take home profits that fuel investor interest.

I'd submit that some investors are waiting to see wait MS will offer as a replacement for Windows 7 before they jump in.


RE: thought
By TakinYourPoints on 7/21/2011 5:32:25 PM , Rating: 2
Of course, I completely agree, I was just responding to the false argument that Apple has higher profit margins than Microsoft's. Theirs are actually much smaller.

Higher net revenue is one reason for investor love, the other reason is year-over-year growth. Melgross made an excellent post on this below:

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.


As for the Windows 7 replacement, the problem is that growth in desktop sales isn't expanding in the same way that it did in the 90s. I don't think it is relevant. Microsoft has currently hit a ceiling with their growth as they either can't seem to break into new markets (Windows Phone 7, sadly, tablets) or make money with the ones they succeed in (XBox 360). We'll see if they can manage to break through in new areas going forward.

Otherwise they should increase their dividend and stop pretending they are a hot growth tech stock.


Rock and a Hard Place
By tech329 on 7/20/2011 6:09:41 PM , Rating: 5
Microsoft is in the unenviable position of having to be all things to all people. Microsoft products, particularly Windows, are held to a somewhat higher standard than is common in the marketplace. And those same products are used to power businesses all across the planet. That's not a fun burden to carry. Given the complexity and immensity of the task, Microsoft does a remarkable job. I'm not sure that the persons critical of the stock performance have an adequate appreciation of just what is being accomplished here.




RE: Rock and a Hard Place
By mcnabney on 7/21/2011 12:31:15 AM , Rating: 3
It is really simpler then that. Consider the placing the entire company on the business development scale:

Introduction -> Growth -> Maturity -> Decline

Both products, companies, and even entire markets follow that path. Right now, Microsoft is clearly at the end of the Maturity (Cash Cow) phase. They require little investment to maintain their profit streams. Right now the decline phase looks almost certain. 95% of the work currently done on Windows desktops can be easily shifted to other platforms (tablets, consoles, smartphones, 'Smart' TVs/devices....). Microsoft has been nearly written out of the new mobile market (WP7 sales are terrible, Windows Mobile is still doing better). Losing the desktop monopoly is one thing, but that loss could even undermine their strengths on the server / cloud side. The market sees that weakness and that anticipated decline is depressing the MS stock price. That is just how business works. MS doesn't seem likely to turn into a quarterly dividend company, so their future remains a bit cloudy. It is hard to imagine a computer world without MS, but it is easy to imagine one in which they don't control the market anymore.


Profit margins
By TakinYourPoints on 7/20/2011 6:40:14 PM , Rating: 4
quote:
Microsoft's underlying issue is that its profit margins are good, but not great.


This is incorrect, Microsoft's overall profit margins are among the highest in the tech industry. Windows and Office profit margins are so high that they can afford to float barely profitable (and up until recently, deep in the red) products like the XBox and still have profit margins that make pharmas jealous.

Microsoft made third quarter gross revenue (ended March 31) of $16 billion with net income of $5 billion. For comparison, in the quarter Apple reported yesterday they made over 28 billion in gross revenue, double Microsoft's, and over 7 billion in net profit. Half the gross revenue but only 2 billion short in net profit indicates much higher profit margins, which makes sense given that software doesn't have to take hardware commodities and physical production into account.

The other thing to consider is that a major component of a stock's value is their growth. Apple has year-over-year doubled in gross revenue for several years now, while Microsoft has done the same in about a decade. One business is mature while the other is still expanding and finding a ceiling to that expansion, so the stock will be priced accordingly. What is unusual about Apple is that the graph for their revenue growth increases looks more like a mid-cap or small-cap, not a member of the NASDAQ 100.




RE: Profit margins
By mcnabney on 7/21/2011 12:34:51 AM , Rating: 2
MS is pretty much just a software company. Not a lot of 'production' costs. Just development and administration. Apple has to actually build devices to sell. That provides higher gross profits, but the expenses of managing and supporting hardware diminish earnings.


RE: Profit margins
By bigdawg1988 on 7/21/2011 1:01:59 PM , Rating: 2
Why do they really need investors anyway, just to drive up the stock price and make their stock more valuable? Why don't Ballmer and Gates just take the darn thing private? Their profit margins are certainly high enough, although I guess they couldn't afford to buy back all that stock.


While I don't agree with
By icanhascpu on 7/20/2011 6:13:07 PM , Rating: 2
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.




RE: While I don't agree with
By Tony Swash on 7/20/11, Rating: -1
RE: While I don't agree with
By zaaf on 7/21/2011 12:05:09 AM , Rating: 3
quote:
Microsoft should be a bit more worried than you suggest, their business is hugely dependent on products that are very old


Xbox 360 is the dominant console. Wii was a success, but arguably a fad. And I own a Wii and PS3 along with my 360.

But to the point, what will replace Office, Exchange, Windows Server, SBS Server, SQL, etc? Microsoft has it's niche, believe or not. Business computing, from SMB to Enterprise. The funny thing that is never mentioned is the 90%+ desktop market share that Microsoft still maintains. Apple has a good product but please, keep things in perspective.


RE: While I don't agree with
By themaster08 on 7/21/2011 3:25:17 AM , Rating: 2
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.
That's a possibility in the consumer space, but in the business market it's an entirely different kettle of fish.

You seem to forget that Microsoft's prime target market is business. Their business portfolio continues to expand, offering excellent, innovative and extremely profitable solutions. When was the last time IBM released a consumer-oriented device, and how profitable are IBM as a company?

You have this belief that Microsoft's fate lays completely within the consumer space, and without something fast they will be pushed to the ranks of obscurity. You couldn't be further from the truth.

As long as Microsoft continue to innovate in the business market, they will always be profitable enough to enter into consumer-oriented markets until they can find a foothold in one of those markets. If their consumer-oriented ventures flop, they will have more focus on their business market and grow accordingly.

The Xbox for example. Whilst not an extremely profitable venture, it is still a success, and they have their foot very much in the console market. Microsoft can learn from their mistakes. Kinect is outstanding and has masses of potential. Furthermore, Microsoft are bringing tighter integration of their products in Windows 8, such as deep Windows Phone, Xbox Live and Kinect integration, allowing you to use your computer in more ways than using a keyboard and mouse, or even a touch screen. The metro UI employed within the tablet version of Windows 8 will only further complement the overall experience.

Furthermore, Microsoft's huge desktop OS market share will push Windows 8 to become a dominant player in the tablet market. Microsoft's 3rd party developer support is beyond anything Apple could ever imagine. Why would that all-of-a-sudden change with Windows 8? This will bring in developers and consumers alike.

Windows Phone Mango is on the virge of release, as well as a renewed lineup of devices which will bring Windows Phone on par, and in some aspects beyond the capabilities of iOS and Android.

There's a lot going on up at Redmond that people seem to not give Microsoft much credit for. But we'll see how all of this pans out over the coming years.


Apple vs MS valuationsa
By melgross on 7/21/2011 2:27:42 AM , Rating: 2
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 MSs' 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.

Apple went from a smaller company than MS two years ago, to just a bit bigger last year, to close to twice the size this calendar year (when it ends). So why would MS be worthy of better treatment?

MS is also being seen as making major mistakes it refuses to rectify, such as in search, where it's losing billions a year, with no respect of ever making a profit.

http://www.businessinsider.com/microsoft-bing-losi...

In addition, the XBox has been mentioned. But it's worth saying that it's just responsible for less than $2 billion in sales to MS. Trivial, really.




RE: Apple vs MS valuationsa
By Mitch101 on 7/21/2011 12:24:46 PM , Rating: 2
Apple is one Kidney away from being a penny stock. Yes I went there.


RE: Apple vs MS valuationsa
By TakinYourPoints on 7/21/2011 3:13:37 PM , Rating: 2
You nailed it. AAPL is incredibly undervalued compared to other techs like AMZN, CSCO, and even MSFT right now, especially when looking at their respective PEG ratios. It is investor sentiment, not hard numbers that is keeping the stock price down.


Lolz @ photo
By Ozziedogg2011 on 7/20/2011 6:13:46 PM , Rating: 2
Ballmer looks like force lightning is about to erupt between his fingers, followed by a sinister "MWUAHAHAHAHHA!"

Darth Ballmer?

"The dark side clouds EVERYTHING, even the stock market."




RE: Lolz @ photo
By rburnham on 7/20/2011 7:07:04 PM , Rating: 3
I was thinking more along the lines of Young Frankenstein.


Seriou*@@...
By Whut on 7/20/2011 11:37:16 PM , Rating: 3
This isn't some conspiracy against Microsoft or a harbinger of imminent downfall as your hyperbolic (as always) title and article suggest. Stock prices are based on perception and expectations. Microsoft's stock is already high because it was doing well and expected to do really well. The 6% increase is because it did even BETTER than people expected... BETTER than was already reflected in it's high stock price. Microsoft is still an excellent stock for investors. It just happens to be a very large and old company, and is no longer an excellent GROWTH stock. This happens with almost ALL massive/old companies. Once you get to a certain size, it's very difficult to continue growing at the same rate because the market doesn't support that kind of volume.

Apple is increasing faster, because it's doing MUCH better than their already high expected growth. Apple also has the benefit of consumers being largely uneducated about value vs price of their products, and takes advantage of this knowledge, so they can rake in much higher marginal profits. Due to pretty amazing marketing, they have also turned their products into a status symbol, so again people are willing to give them those huge profit margins.

Meanwhile, Microsoft is more or less doing what it has always done and is really good at. They may not charge as high of prices, but their volumes are MASSIVE, so they still do just fine.

Even companies whose stock prices FALL can be doing extremely well. They just happened to be expected to perform better than they actually did. But seriously, do you know anything about the topics you write about? Almost every article you write is garbage. I basically only made this account because of how absurd you are in very nearly every article you submit. You're welcome.

Cheers.




fewer products?
By kleinma on 7/20/2011 7:49:55 PM , Rating: 2
If you count every app, song, tv show, movie, eBook, etc that there is an Apple Tax on for targeting the platform, then one could argue they move a butt load of product ;)




Outstanding Shares
By emmettc on 7/21/2011 11:40:15 AM , Rating: 2
The real reason that Microsoft's stock is priced where it at is because of the number of outstanding shares in the market. Currently MSFT has 8,432,767,307 (yes, 8 billion!) shares out there, trading at about $27.22/share (as of 11:30am today). A company like Apple on the other hand, as only 924,754,561 shares trading.

I remember the days where it seemed like Microsoft's stock split every year. Well, all those splits diluted the price of the stock. Perhaps it's time for Microsoft to implement a reverse split, as Citibank recently did, pumping up it's price from about $4/share to $40/shares.




Unlike most of you folks...
By bupkus on 7/21/2011 1:52:17 PM , Rating: 2
I readily admit that I don't know the reasons why MS appears in decline. But if I were able to suggest a replacement for Ballmer I would first recognize one of the most powerful aspects of marketing which we already all know is called "celebrity power". That is one aspect where Apple is way ahead. Steve Jobs has been a charismatic character for many years, whereas Ballmer is a guy who climbed the corporate ladder using the skills one needs to climb a corporate ladder.
I would replace Ballmer as soon as possible, not because MS needs a fall guy but because he is unnecessary. He should have stayed in a supporting role.

MS, find someone who is both highly qualified for the job and also is charming and charismatic. Secondly, MS needs to both develop and leak the fact of a MS Area 51. Let it be known that there is a MS think tank searching for the next step or product in tech evolution and in fact secretly developing something... anything... just not Ballmer approved.

Then... actually deliver something brilliant.




Ballmer needs to go
By shompa on 7/21/2011 2:30:52 PM , Rating: 2
"Between 2001 and 2011 it grew only 2.5 times."

MSFT shares have gone down 50% during this time with Ballmer.

They need a leader with visions, not just a great business mind like Ballmer's.




xzczz
By yuioking on 7/21/2011 9:29:33 PM , Rating: 1
h t t p : / / w w w . b e n z l o g o . c o m
I tide fashion Good-looking, not expensive




vcxvxcvx
By kangkang on 7/20/11, Rating: 0
You couldn't make this !*!* up
By Tony Swash on 7/20/11, Rating: -1
"What would I do? I'd shut it down and give the money back to the shareholders." -- Michael Dell, after being asked what to do with Apple Computer in 1997














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