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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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RE: i don't get it
By Targon on 5/2/2011 8:23:54 AM , Rating: 2
The hardware costs vs. software is what you fail to understand. Microsoft may have their game console business, plus keyboards and mice, but other than that, Microsoft is NOT a hardware company. Microsoft can see the ultra-portable market is growing, so it looking to take advantage of that market.

The whole move to a very small OS isn't ONLY for these devices either, but is more about "how to make an OS that is not bloated and insecure". By making the overall footprint of the OS smaller, it is far more difficult to infect, and also would allow for the OS to be locked. A big problem with MS Windows at this point is the SIZE of the thing, and that leads to a lot of inefficient code. Focus on shrinking things down, and you not only take advantage of the ultra-portable market, you also make it more difficult to infect. If the registry wasn't such a beast, it would also be far easier to find and identify things that infect the OS.

RE: i don't get it
By michael2k on 5/2/2011 11:49:25 AM , Rating: 2
What am I failing to understand?

I'm saying that with a standard PC they can net $50 licenses ($20 for netbooks) for each sold since these devices cost upwards of $300 or so.

With an ARM powered PC, and a pricepoint well below $200, they would be lucky to get $10 licenses, possibly as low as $5. So even though the market is growing, it's so low cost as to be a risk and not a positive. It's powerful enough that it could displace traditional PCs for a large swathe of the market.

You are the one that seems to miss that. If every office worker got an ARM PC for $150 (including Windows and Office for $10 each), that's the loss of a $50 Windows license and a $50 Office license. Instead of making $100 from a sale, they now make $20.

"Paying an extra $500 for a computer in this environment -- same piece of hardware -- paying $500 more to get a logo on it? I think that's a more challenging proposition for the average person than it used to be." -- Steve Ballmer
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