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!"
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.