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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 SalesForce.com Inc. (CRM) and Google Inc. (GOOG) offer rented software, Microsoft finds its earnings under assault on a second front.



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RE: LOL
By PrezWeezy on 4/27/2011 4:15:53 PM , Rating: 5
Ever tried writing a letter on a tablet? How about a lengthy email? An essay? A book? How about writing an app for your tablet, on your tablet?

There are two usage models in the world. Content creation, and content consumption. While Apple and Google are targeting the content consumption market, Microsoft is hedging it's bets on the content creation category. You can argue whether they are right or not in doing so, but the fact is your mobile device which does content consumption has to have content to consume. So the idea that more and more consumption will reduce creation is folly at best. The fact is that more consumption should create a higher demand for creation.

In that light, the idea of a "desktop" is not going away. It is changing, morphing, and evolving, but not going away. You might see less of them in the home, which is where that consumption is really happening, but the creation community (business, selling their e-goods to consumers) will be spawning new and more areas where Microsoft can start to take hold.

I realize that, yes, you CAN type an email on an iPad. You CAN type a letter, or an essay, or a book. The truth is though that if you replaced your desktop with a tablet you would have a very hard time doing that without your keyboard. Not to say that you can't hook one up, but then you are back to the debate of creation vs consumption. I know for me, using an iPad as a creation device would be a complete pain. And if you have to have it hooked up to your keyboard, mouse, and big monitor (who wants a 10" screen?) then it starts to become cumbersome as a mobile device.


RE: LOL
By B3an on 4/27/2011 5:08:49 PM , Rating: 5
It's not just typing though. Many people even at home need powerful hardware. For things like 3D rendering, CAD, video editing, graphic design, even web design, and so on, theres absolutely no way a tablet would ever cut it.
PC's will always remain more powerful because of the extra space. Even my 980X @ 4.2GHz with RAID SSD's and 24GB RAM is nowhere near as fast as i'd like for my 3D modelling/rendering.

Theres also the input... you cant get the same accuracy using your fingers and they just get in the way of the screen, it's extremely clumsy.
Then theres the actualy screen size on a tablet, averaging 9" with a pathetic res. How can people do work on that?? I have two 30" 2560x1600 monitors and still want more room. I can list about a million other reasons why PC's will always be needed but i'd be here all day.

The only people who think tablets would completely replace PC's are the ones that dont actually do any work on them. As usual these unimaginative idiots think everyone has the same needs as them - sitting on a couch all day browsing facebook.


RE: LOL
By themaster08 on 4/28/2011 2:40:08 AM , Rating: 3
I agree wholeheartedly. Sure, tablets will cut into PC sales, due to the amount of people using their computers to primarily consume media. However, there is still very much a market for both a PC and a tablet. That will not be going away any time soon, and by that time Microsoft will have a tablet OS, while still making bucket loads of money from Windows and Office sales.

What I wonder is because people feel the market is shifting towards tablets, how will malware creators react to this? Will their premise to be to shift away from Windows and onto tablets? Is the PSN debacle a sign of things to come?

Tablets in their current form have been out for a little over a year. However because Microsoft haven't released a product yet, investors are cautious. This is absolutely absurd.

Windows Phone 7 was released just a few short months ago, however it has the fastest growing application store of any ecosystem and has massive potential. Major updates are coming faster than any other ecosystem, and with the joint venture with Nokia, the future is looking extremely promising for the platform.

Microsoft don't need to release a tablet OS right now. Google have done that, and they have ended up with a half-baked OS, with a lack of applications and with bugs that should have been ironed out before release. The only thing Microsoft need to do is to get it right, the first time.


RE: LOL
By mcnabney on 4/28/2011 10:08:18 AM , Rating: 2
I really don't see the need for desktop PCs outside of content creation after 2012 or so.

By then, tablets will be running at 2.5ghz and have 4 or more cores. They can be slapped onto a keyboard (see: Asus Transformer), plugged into a Dock and run a larger monitor or HDTV (Xoom), and will likely be running 1080p or better. 95% of PC owners use the boxes for office, email, web, pictures, video, and casual games. Tablets can do all of those things just as well. By the time the next console generation comes out there will be no need for a PC outside of content creation, and even some of that could be done on a tablet.


RE: LOL
By PrezWeezy on 4/28/2011 6:56:27 PM , Rating: 2
And those things you talked about require a different UI to do. You need a UI with big buttons and easily accessible fields on your tablet. On your PC you want as much screen realestate as possible. So loosing all of that to a UI which is developed for touch is going to be a problem. The exact same problem affected the original XP and Win 7 tablets. Creation and consumption are completely different usage types. Trying to make one do the other will end up with both systems lacking.


RE: LOL
By Calin on 4/29/2011 8:29:34 AM , Rating: 2
I'd like to mention that in the 1980s the Sinclair Spectrum had 256 by 176 pixels of resolution, and in the 1990s the typical resolution was 640 by 480 and 800 by 600 (on 14" and 15" displays).
Is the iPad adequate for every need? Certainly no, it might not even be adequate for most needs - but it certainly is good enough for many peoples.
As for "PCs will always be needed" - the desktop computers are losing to laptops in market penetration (and you wouldn't get more than half the performance of your workstation from any kind of laptop anyway).
In the end, just as laptops become good enough and fast enough that people accept their smaller screens and not-so-good keyboards, so tablets will replace some of the laptop market when they get fast enough.
I really don't like the ergonomics of a notebook, and I really like to have a full blown computer - but for many things, and for some people I know a tablet would be good enough


RE: LOL
By quiksilvr on 4/28/2011 9:24:03 AM , Rating: 2
What is the idea of a "desktop" is in fact a tablet or a smartphone? With technology like quad-core ARM processors, DLNA for 1080p streaming and bluetooth for peripherals, you very well can replace the CPU tower with a sleek and sexy tablet/smartphone. Imagine just walking up to your desk with your tablet and it automatically starts up and all you have to do is place your tablet/smartphone next to you and sit down to get the serious work done. Imagine having the same setup at work?

THIS is what investors are worried about. They want Microsoft to push Windows in the tablet and smartphone ecosystem. And Microsoft KIND of accomplished this with their demonstration of Windows 7 (8 beta?) running on an ARM processor, but it simply isn't enough in this constantly evolving, changing, morphing technology environment.

I totally understand that there are people that want a desktop for more CPU and GPU intensive needs, but there is no doubt that tablets and smartphones are getting more powerful each day and may start to provide those needs sooner than you think.


RE: LOL
By Shadowmaster625 on 4/28/2011 10:09:11 AM , Rating: 2
yeah right... maybe a tablet from 10 years into the future.


RE: LOL
By Da W on 4/28/2011 1:37:13 PM , Rating: 1
If you have a powerful quad core ARM processor pumping 2 watts, imagine what kind of power a 125 watt X86 processor will be able to do!

You will always, ALWAYS, have more power in a bigger form factor. So no the phone won't replace a desktop, when i want a desktop i want a desktop and a phone will stay a phone.

Fuck i can't even load a 400KB excel file on my WP7 phone.

Anyway what the market don't see is that even if PC sales are decling, Microsoft is slowing moving away from core PC sales, with their phone, Xbox, tablet efforts. Who can predict that in 2016 everybody will have iPads only and microsoft will be in bankrupcy? may be it's gonna be the reverse, iPad sales will hit a seeling pretty soon and Micorsoft will ofer laptop/tablet hybrids with Windows 8 and rent office 365 software to cut salesforce.com and google. Who knows. All i know is that the market is princing Apple as if they will keep a 50% growth rate for years and Microsoft as if they're about to die.


"Nowadays you can buy a CPU cheaper than the CPU fan." -- Unnamed AMD executive














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