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Eroding Windows sales is hurting the stock price at Microsoft

Microsoft is the largest software company in the world and there is little to indicate that it will cease being the biggest gorilla in the cage anytime soon. Although profits at Microsoft were up and were greater than Wall Street expected, the company has seen its stock plummet and sales of its Windows operating systems are sagging. 

Microsoft offered up the financial details for its latest quarter yesterday. According to the numbers, Microsoft's Windows division saw sales of Windows 7 OS slide. This is attributed in part to the sagging PC sales that were down 1% in the same three month time period compared to a year ago. When PC sales sag, so do sales of Windows since the vast majority of PCs shipped run Windows in some flavor.

At the same time, some of the blame for sagging Windows sales and slowing PC sales is attributed the popularity of other gadgets and devices like the iPad. The iPad and other tablets are encroaching on the PC market in a noticeable way and many feel that trend will only grow.

As a result of Windows losing momentum in the marketplace and uncertainty of PC sales Microsoft has seen its stock price fall 1.2% to $26.37 in trading reports Reuters.

Capital Advisors Growth fund Channing Smith said, "Microsoft to me is no longer a growth stock, but it is a very attractive value stock. They continue to generate tremendous free cash flow. Their balance sheet is really unmatched." He continued, "What you will begin to see is a shift away from growth investors. You are seeing that transition where Microsoft is in no man's land, but I think they will become increasingly more attractive to value investors."

Over the last year, Microsoft's stock has lost 14% compared with an overall growth of 16% for the Nasdaq. While Windows slipped, other segments of Microsoft's business did well and took up the slack. Overall, net profit at Microsoft was up 31% in fiscal Q3 to $5.2 billion amounting to 61 cents per share. After excluding the tax benefit Microsoft profits still met analyst expectations.

Standouts for the quarter included the Office Division which saw a 21% increase in sales to $5.2 billion, and the Entertainment and Devices Division relied on the Xbox 360 and Kinect to rack up $1.9 billion in sales.

The much talked about deal for Bing to provide search results on Yahoo is still not performing as Microsoft had hoped with the division posting a loss of $726 million.

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This always happens
By Smilin on 4/29/2011 11:21:35 AM , Rating: 2
Find any record MSFT quarter and the stock tanks that day.

They've been setting record quarter after record quarter. The stock tanks the next day, wallows slowly upward over 3 months then tanks again next quarter.

I own GOOG, AAPL of course but really I'm enjoying the bargain price of MSFTs *dividend* paying stock quite a bit. The other two are baseball card stocks, worth only what how someone else values them. It will be tricky to know when to step of the top of those roller coasters.

And the whole "pc is dying" thing is crap:
1. Of course its going to die
2. Not today
3. So are the days of buying licenses in bulk..things will be "buy how much you use" in the cloud.
4. Microsoft saw and planned for this long before anyone else. They aren't counting on it as a long term income stream.
5. They are diversified as all get out. They have lots of cash cows and are raising new ones constantly.

RE: This always happens
By michael2k on 4/29/2011 2:14:28 PM , Rating: 2
Stocks have to tank. That's what happens when people sell for a profit.

The real problem is growth. Stock growth only occurs when investors believe that buying MSFT is better than buying AAPL. It's a classic supply/demand problem since there are only fixed numbers of stock.

So if you wanted to buy AAPL, you have to bid higher than the people selling in order to outbid the other buyers, because demand is high.

If you wanted to buy MSFT, you in fact don't have to bid higher because there is no demand.

It is very much like trying to buy an out of stock iPad vs a copiously supplied WP7.

RE: This always happens
By Smilin on 4/29/2011 4:01:45 PM , Rating: 2
Profit taking is usually seen just after a rise... "buy on the rumor, sell on th news".

In MSFTs case it doesn't seem to happen this way.

RE: This always happens
By michael2k on 4/29/2011 8:13:49 PM , Rating: 2
MSFT rose from $24.7 to $26.7 in the 10 days prior to earnings. That's enough for profit taking!

Of course the real "profit taking" occurred on Feb 4th after they announced they weren't going to push WP7 onto tablets. It fell from $28.28 to $24.7!

RE: This always happens
By Smilin on 5/2/2011 9:59:04 AM , Rating: 2
Most of that swell was due to intels earnings reports indicating PC sales were picking up. This time around (profit taking always happens to some degree) it was a dip in Windows sales that freaked investors. Next time it will be something else.

Microsoft has only posted a dip in growth during the worst of the 2008+ recession. Every other quarter/year they've posted gains or record gains.

I've no intention to sell anytime soon and I'll snatch at these low prices from time to time.

RE: This always happens
By michael2k on 5/2/2011 12:17:52 PM , Rating: 2
Really? Several quarters have dipped, even without the 2008 recession, in the last 7 years:

RE: This always happens
By Smilin on 5/2/2011 1:21:32 PM , Rating: 2
RE: This always happens
By Lerianis on 4/29/2011 4:17:00 PM , Rating: 2
Sorry, but 'everything is going to move to the cloud' is bullhockey.

People don't want to have some specific things on 'the cloud' and they ESPECIALLY don't want to not be able to use their computers if their internet connection is down.

Ubisoft found that out with Assassin's Creed 2! That is why they made AC: Brotherhood with 'play offline' ability!

RE: This always happens
By KoolAidMan1 on 4/30/2011 3:30:37 AM , Rating: 2
5. They are diversified as all get out. They have lots of cash cows and are raising new ones constantly.

I disagree. As was posted above, 36% of it's profit is Windows. 41% is Office.

Tools and Server is only 18%. XBox and Zune (which they just discontinued) is 3%. Their losses? $1.8b last quarter, which is all the profit they made from Server and Tools.

Software is EVERYTHING to Microsoft, end of story. It isn't "hype" that software is what pays for their loss leaders, it is harsh reality. They can't seem to break through anywhere else. Their one hit, the XBox, is finally in the black after five years, and their one good new product with Windows Phone 7 is having a hard time against Android.

I personally believe that the whole PC is dying thing is overblown as well, but they are also missing out in the rapid growth and insanely profitable areas that Google and Apple are leading the charge in right now.

"I'd be pissed too, but you didn't have to go all Minority Report on his ass!" -- Jon Stewart on police raiding Gizmodo editor Jason Chen's home
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