Bullish Thoughts on Microsoft (Even Though I'm Not Happy with Them Overall)

Been some light posting of late and just wanted to do a quick post on Microsoft (MSFT) with some highlights of how some of the upcoming product launches at MSFT and its competitors might impact the landscape:

• Windows 7 is essentially Vista but vastly improved. It's the closest thing to comparable I have seen to Mac OS and might at least slow the market share gains. They've successfully narrowed the gap here. (not eliminated, but narrowed).
• The iPhone (AAPL) actually drives Mac desktop sales and Microsoft still has no effective counter to this. When people buy an iIPhone it's more likely their next PC purchase is a Mac. When they get a phone with Microsoft OS on it, they think of strategies to get their IT guy at work fired.
• They did a good job with Bing and that leads me to believe there won't be a dilution acquisition with Yahoo (YHOO). Bing is decent and people are using it. Hugely highlights Google (GOOG) vulnerability.
• The equity should outperform the S&P at least until the launch of Windows in the fall.

After a 9 month horizon, issues still remain around a few notable issues:

1. Declining dominance in desktop OS as Apple and others gain share. Windows 7 has the potential to fix some of this. Bill Gates wants to save the world with his billions but someone still needs to save the world from his bad software.
2. Over reliance on a 1990s monopoly to preserve market share rather than innovation. They still copy other people's work.
3. It's ability to gain momentum in mobile OS is not going well in an incredibly competitive space. Part of the problem with their mobile phone strategy is they keep trying to put windows on the phones.
4. And it's success in internet search is by no means guaranteed with the launch of Bing. Additionally, their ability to innovate continues to be impaired and they continue to rely on small marginal changes in products that mimic the ideas of their competitors in order to maintain a prior monopoly market share.
5. Gaming continues to look good for these guys. This part of MSFT has done well for a long time and no near term events are going to change this. Sony (SNE) PlayStation pretty much lost the war.

If you couldn't tell, I'm long the equity and not really happy about it. Microsoft has lagged the market for a while now, represents a value and is likely to garner superior performance.

Disclosure: Long MSFT

Comments

[mollytjm:]

'Windows 7 is essentially Vista but vastly improved...'? How vast would it have to be to come close to Snow Leopard by Apple? More vast than it's capable of being, that's for sure. There was a LOT of room for 'improvement'.
Your judgement of Microsoft as being a copier is correct but they have a hard time being a GOOD copier. Windows was built from code Apple sold them (to stay alive) years ago and they never really got that right either. And then there's the Zune which could have more aptly been called the zzzzzz.
Microsoft had a monopoly and still does in some areas of business, so they'll be around for awhile. But i think their business will come more from smaller software programs, games, business applications, etc. and not from anything like Windows.
I just find it hard to invest in a technology company that doesn't innovate well...or, sometimes, at all.
Long APPL

Jun 21 08:23 AM

[winindthedust:]

FWIW - 'Bing' means 'disease' in Chinese.

Reminds me when GM tried to sell the Chevy 'NOVA' in South America.

Jun 21 10:22 AM

[winindthedust:]

My experience so far with 'Bing'- I used to use Farecast, and appreciated not being spammed. Once Microsoft took it over, then changed it to Bing, I received a dozen so called 'alerts' a day spamming me. I promptly unsubscribed to the service, and relegated it to my spam box.

Jun 21 10:26 AM

[winindthedust:]

 giving SL as a free Leopard upgrade, to current Mac buyers, as well as only $29 to all others, means the OS will be promptly adopted.

This also puts extreme pressure on M$, as they have been making price comparisons on products they don't even make. The REAL price comparison, between software, stands as a direct torpedo to M$'s attempt to direct attention away from the fact that it's OS is often the most expensive component of a PC.

M$ only profit center s Windows & Office. I'm sorry, but gaming has only lost M$ money, I don't call that successful at all.

Since only two pieces of software are it's only profit center, they either have to sell cheap on volume, or they keep prices high, and don't sell much at all.

Further pressure comes from Open Office and others, that are also making people question the high price of M$ Office. Mac users are quickly adopting iWork (and preferring it) over Office. M$ has lost the so called 'standards' war, and no longer can control this space, as competition with superior (and cheaper) products are now available that have cross platform and multiple doc type compatibility.

Prediction: Office will begin reducing it's price, as innovation in this space is coming from outside of M$.

As far as Windows 7? Who knows. If they charge for what should be a maintenance release, there will be an uproar and vast numbers of switchers. If they don't charge, however, there goes their billions, and their market cap starts to shrink incredibly fast.

Jun 21 10:45 AM

[jkmac:]

Love to hear from all the apple groupies. <:)

Jun 21 10:56 AM

[winindthedust:]

One last thought:

The 'netbook' space is the hottest PC seller (but unfortunately no profit), and I believe this puts additional pressure on M$.

Why? Because Windows of any flavor runs very poorly on these machines. Here's a real case study: I had a buddy that brought a brand new netbook into work, to use in the field for BAS commissioning. It had the latest Vista. As an understatement, the machine was a complete dog, and almost unusable. Running more then one program at a time was impossible, and load times were excruciatingly slow. IE was a complete joke in usability. These are strong words, but needless to say, my buddy doesn't use that machine for work (after all, time is money). We ended up using our "behemoth" Sager PC deskbooks (plugged in of course) and our svelte Macbook Pro's for moving around.

M$ is getting it from all sides, even their partners. PC makers will get their profit back into this space by developing an alternative OS, probably Linux or Android.

ones thing is for sure, either the hottest selling PC will kill Windows, or windows will kill netbooks....

Jun 21 11:01 AM

[winindthedust:]

That's intelligent. People are looking for sound investing advise, and that's all you have?

I would be Microsoft's biggest fan, if they got it together. All things considered, any pop in stock price is short term. I don't see any real long term strategy to justify valuation above it's current status. If it still had a monopoly, that would be one thing, but it no longer does. This puts both innovation pressure & price pressure on Microsoft. So far, they have bungled everything they have touched, losing money hand over fist. They ONLY thing keeping them afloat is Office & Windows. We've already discussed pressures in these two areas.


On Jun 21 10:56 AM jkmac wrote:

> Love to hear from all the apple groupies. <:)

Jun 21 11:10 AM

[RLLH:]

I have installed Ubuntu to see how it compares to Vista and I was amazed to see how easy it is. I think free software and generic PCs are a threat to both Microsoft and Apple.


On Jun 21 08:23 AM mollytjm wrote:

> 'Windows 7 is essentially Vista but vastly improved...'? How vast
> would it have to be to come close to Snow Leopard by Apple? More
> vast than it's capable of being, that's for sure. There was a LOT
> of room for 'improvement'.
> Your judgement of Microsoft as being a copier is correct but they
> have a hard time being a GOOD copier. Windows was built from code
> Apple sold them (to stay alive) years ago and they never really got
> that right either. And then there's the Zune which could have more
> aptly been called the zzzzzz.
> Microsoft had a monopoly and still does in some areas of business,
> so they'll be around for awhile. But i think their business will
> come more from smaller software programs, games, business applications,
> etc. and not from anything like Windows.
> I just find it hard to invest in a technology company that doesn't
> innovate well...or, sometimes, at all.
> Long APPL

Jun 21 02:05 PM

[LookingConf...:]

"And it's success in internet search is by no means guaranteed with the launch of Bing".

***********************
I'm surprised how few understand where Bing, MSN and search advertising are heading. As an investor you really do need to learn more of the "revolution" that is almost upon us. And relating to that huge Global market that will see MSN's 'share' get to grow at the expense of the likes of Google. Register (free) at the link provided below and read my own thoughts in this regard.

It is my opinion that MSN and it's PubCenter, is a platform that will "anchor" the future prospects of publishers and on a Global scale. The evidence that this is so is already compelling. Cheers!

www.sharecafe.com.au/b...

LC

Jun 22 07:00 AM