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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 Da W on 5/2/2011 9:54:49 AM , Rating: 2
You compare a crap OS like iOS that can only control finger commands and launch apps with a full fledged OS like Windows. iOS/Android/Others sell cheap because they ARE cheap. Even Apple don't sell their OSx cheaply.

Microsoft sure lost their monopoly princing power, case in point. But a full Windows PC will always make so much more than a half-baked 2 cents piece of OS, this is the market Microsoft is going for. It will also run software coded in other languages than java.

Owning a smartphone myslef i begin to wonder if there is a serious app that can compare to a PC software in complexity. Sure fart machines and native app that act as a bookmark are cool, but there's a whole FUNCTIONALITY element that a don't find here.

The key for Microsoft will be if there are new things that you can do with a computer. Of course if all people do is browse the web, send e-mails and watch video then a free Android OS does the job. But then Microsoft is positioning itself to do much more. Voice/face/gesture recognition, IPTV on their Xbox (and may be on windows 8), full reworking of their Zune marketplace (which is pretty good but underapreciated) into an HTML5 web marketplace accessible from every platform to compete in the lucrative streaming market and on and on. I see a world where a phone is not enough. For extra capabilities, Microsoft can charge a premium, and then earn money on other products.

It all comes down to valuation. 10 times P/E with a 13% y-o-y growth is cheap.

"I f***ing cannot play Halo 2 multiplayer. I cannot do it." -- Bungie Technical Lead Chris Butcher
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