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Many investors feel Microsoft is fading, despite strong earnings. Apple, which recently passed Microsoft in profit for the first time since 1990 also recently passed Microsoft in terms of market cap. IBM -- another old rival -- is expected to soon do the same.   (Source: AP)

Investors fear that tablet and mobile devices will eventually minimalize PC sales, leading to Microsoft to go from a market leader to a bit player.  (Source: Level Ten Design)
You just can't please some people

Microsoft Corp.'s (MSFT) market cap -- a measure of the total current value of shares -- rests at $219.9B USD.  While that may sound great, competitor Apple, Inc.'s (AAPL) cap is nearly 46 percent higher at $320.5B USD.

In all practicality, both companies are firing on all cylinders.  But Microsoft is earning far less respect for its work.

Fueled by record sales of its Windows 7 operating system and Office software suite, Reuters I/B/E/S expects Microsoft to post a profit of $4.7B USD.  That's approximately 27 percent less than Apple's record earnings of $5.99B USD.  But as you can see, the gap in share value is much larger, percentage wise, than the gap in profit.

There's much debate currently over the investment community's low valuation of Microsoft.  Basically, it largely boils down to that investors perceive companies like Google and Apple to be growing, while they feel Microsoft is fading in the market.

Sales don't currently agree.

Microsoft is expected to earn a record $16.2B USD in its third fiscal quarter (the first calendar quarter of 2011).  And sales for its Entertainment and Devices Division (Windows Phone 7, Xbox 360, etc.) are also rapidly growing.

But at the end of the day investors appear convinced that Microsoft is in for a rough landing.  They eye the fact that the company has been passed by Apple in profit for the first time since 1990.  And they also are well aware that International Business Machines (IBM) -- another foe Microsoft passed in the 1990s -- may soon pass it in value as well.  It currently sits at a market cap of $206.3B USD.

Following the post recession recovery the entire tech market is booming, but the investors' strongest evidence in their case against Microsoft may be PC sales.  Over the first three months of 2011, PC sales fell 1 percent.  It is believed that is largely due to the sharp rise in tablet and smart phone sales.  People are still buying PCs -- but they're doing so less frequently as they increasingly rely on mobile devices.  And that's troubling news for Microsoft, who has struggled thus far in the mobile sector.

Michael Yoshikami, Chief Executive of fund manager YCMNET Advisors is among those very concerned with this development.  In an interview with Reuters, he states:

What people are going to be focused on is what's happening with their core PC business.  Is that slowing down? That's really going to dictate what Microsoft's future earnings power is going to look like.  In the long term, their core cash flow business is going to be impacted, particularly if we start to see an ASP (application service provider) model where companies are essentially renting software.

His comments allude to a second major crisis facing Microsoft -- advertising supported and rented software.  Both forms of software tend to produce lower revenues.  And most of Microsoft's profit is still driven by software sales -- particularly the sales of business licenses.  As business software giants like Inc. (CRM) and Google Inc. (GOOG) offer rented software, Microsoft finds its earnings under assault on a second front.

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By MeesterNid on 4/27/2011 3:44:36 PM , Rating: -1
You just can't please some people

Yeah, and others, like you, Jason, just can't be intellectually honest. Microsoft posts record profits, but investors don't like something, well by golly they're wrong! Apple posts record profits, and boy do you spin it left right and center.

RE: Pathetic
By messele on 4/27/2011 4:15:01 PM , Rating: 1
wIndeed, if anything the fact that there are deep rumblings among shareholders should prompt any savvy commentator to ask serious questions as to why, not to dismiss them as though they do not know what they are talking about.

Fact is Microsoft grew to their heady heights through duplicity. They tucked up the Intergalactic Digital Research company (who dropped the ball) like a good'un which got them into the OS market. Later they stitched up IBM (again who were incredibly inept), Apple, Lotus and best of all Paul Allen. At one time or another Bill Gates and Steve Ballmer have seen - and seized - an opportunity to do the dirty on all of them.

So fast-forward and Microsoft have been cornered. They are still trying to rip everybody else off but most (not Nokia it seems) are wise to them and have things locked down fairly tight these days. They do not trust a word that comes from Gates' or Ballmer's mouths.

Investors know that Nokia are a vampire's feast and they are cool with that, after all, who gives a shit about Nokia once they've had their life-force sucked dry right?

However this predictable behaviour has bitten everybody now and market values are going nowhere with very little direction save for Microsoft buying outside companies for their fresh ideas (Kinect).

Fast movers with great ideas will always win over lumbering giants.

RE: Pathetic
By kleinma on 4/27/2011 4:57:08 PM , Rating: 1
you are an idiot.. he gave PLENTY of reasons in the article why investors might feel the way they do. I agree with him investors should be happy when the company they are investing in is still making billions in profit. If they think Apple is a better investment, they should take their money there.

RE: Pathetic
By messele on 4/28/11, Rating: -1
RE: Pathetic
By MeesterNid on 4/28/2011 8:39:07 AM , Rating: 2
Seriously, you really should work on reading comprehension. If you're too thick-skulled to understand my comment then just don't post your asinine reply. My beef is with Mick's persistent defense of everything Microsoft and constant attacks on anything Apple. That's it! This article is simply an illustration of that bias. He would never side with Apple, regardless of the validity of company's position.

RE: Pathetic
By messele on 4/28/2011 10:18:37 AM , Rating: 2
You should try taking a look in the mirror since i am agreeing with every word you said.

I have exactly the same beef and constantly get berated for it. Never expected the same treatment from somebody who sees things the way I do!


"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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