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I am an investor that is interested in much more research then your typical investor. I like to look at the numbers, but also step back and look at the big picture. I feel my strategies have been successful in identifying sound investments, and lucrative opportunities and I welcome new ideas,... More
  • Is Microsoft, The Age-Old Software Giant, Soon To Become An Extinct Dinosaur? 8 comments
    Apr 17, 2013 1:38 PM | about stocks: AAPL, BBRY, GOOG, MSFT

    Just like the Millennial generation that jump from company to company, so to are the industry leaders that are dislodging competitors, only to see themselves dislodge as market leaders several years later. Disruptive technologies are becoming more widespread within industries, that companies that do not retain innovation and an eye on their future, may quickly not only lose their place as a market leader, but may even risk closing their doors. This was the case with Blockbuster that filed bankruptcy within eight years of it's competitor, Netflix (NASDAQ:NFLX) filling its IPO in 2002. Blockbuster didn't even see it coming, a disruptive innovation such as DVD by mail, and no late fees. By the time Blockbusters' revenue began to feel the effects, it was too late to change their business model and they along with Movie Gallery, the second largest video rental industry leader, filed for bankruptcy.

    Now how does the video rental industry relate to Microsoft, a company that has retained a monopoly on PC operating software for over 30 years? They may soon be feeling the effects of a substantial decrease in revenue due to the latest disruptive technology taking fold. The only difference is that Microsoft (NASDAQ:MSFT) has seen it coming for a couple years now. This disruptive technology is none other than laptops and smart phones; devices that one may currently categorize as primitive personal computers, ones that use simple apps instead of programs. Now I am not saying that Microsoft is in jeopardy of going under in several years, however, with the drop in share price Research in Motion (NASDAQ:BBRY) has seen over the last two years, it is not unfathomable that Microsoft's long standing share price in the high twenties could see a negative readjustment.

    Tablets and smart phones are moving into, what Andy Grove identified as Segment Zero, the lower end segment of the PC market. Tablets and smart phones are in a nutshell, rudimentary personal computers, however they are beginning to eat into the lower end PC market share such as ultrabooks and laptops, as customers begin to rely more and more on mobile devices rather than the traditional PCs. More so, as the technology in mobile devices increases, so do the functions of these devices to the point that they will replace what PC currently do. When explaining this in previous discussions, I have been told by computer and software experts alike, that there would be no possible way that the work performed on PCs in offices today would ever be achieved on a smart phone or tablet. It is the same criticism that was given to computer enthusiasts over 50 years ago when it was envisioned that a personal computer for hobbyists be introduced into the mass markets. At the time, computers, extremely large in volume, requiring large rooms to be housed, and large amounts of capital to purchase, were thought of as only useful, (and affordable) by governments and large corporations. However, the Personal Computer market sure dispelled any criticism that it was not the future of computers, as computers soon found their way into every household in America, utilizing some version of Microsoft's Windows operating system. Now with the introduction of the tablet, the future of PC's has been cemented into a much more mobile device.

    Readers, lend me your imaginations for just a moment. Imagine walking into work, or your home office, placing your smart phone or tablet down onto your desk. The device automatically connects to your stationary monitor and keyboard thru Bluetooth. With wireless internet connection, all programs (or apps in this case) are cloud based, allowing the user to operate programs that typically require large processing power. Many argue that the programs necessary for the day to day operations of offices and companies could not be accomplished on a smart phone or tablet, and I agree, today they cannot, but the smart phones of tomorrow will. And, tomorrow is not looking too far off. Now the kicker is that two companies own the majority of the market share of tablets and smart phone operating systems, Apple (NASDAQ:AAPL) with iOS, and Google (NASDAQ:GOOG) with Android. Microsoft has attempted to gain market share with W8, a system that integrates PCs with their mobile counterparts, even having to design their own tablet, the Surface, to get into the game. Unfortunately, it may be too little too late as consumers seem to have begun to move towards the market leaders, with nearly 23 million iPads sold compared to a paltry 1 million Surface tablets last quarter. Yes, Microsoft is looking to counteract with a new type of operating system with continual updates, codenamed Blue, similar to what iOS and Android already do, however, this is a reactionary measure by the company, and also one that will cannibalize their current business plan, of consumers paying for new operating software upgrades.

    With PC sales dropping nearly 14% in all of 2012, and now showing a matching drop of 14% in the first quarter of 2013 alone, Microsoft is starting to tread in deeper waters. The fact that iPhone revenue alone, is greater than all of Microsoft's revenue together, exemplifies the magnitude of this potential vulnerability. With PC manufacturers feeling the pinch, moves to mobile platforms such as tablets and smart phones will become the focus, and this may leave Microsoft on the outside looking in. Microsoft has nearly $60 billion of cash on hand to begin developing and researching new business plans and strategy to make up for the loss in their Windows revenue, nearly 30% of this last quarter's revenue. Though their Windows division has seen recent increases in revenue, one must understand that many PC users are only just moving to Windows 7 from XP, and so there is quite a lag in user licensing fees, and operating system exposure. By the time business and users moved to a competitive, mobile system, the drop in revenue would be immediate and quick. And all the indicators tell us that this is on the horizon, it's just a matter of what does Microsoft does to make up for that 30%. It has a lot of cash on hand, it just does not have the market share, and so there may come a day, when Microsoft will be selling the Surface Tablet, powered by Android.

    Disclosure: I am short MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: I believe that that MSFT is no longer the safe blue chip it once was. If conservative investors are looking to hold it as a safe dividend paying stock, it may be be coming on some harder times as PC sales continue to drop, and could see a significant readjustment in its traditional stock price.

    Themes: market-outlook Stocks: AAPL, BBRY, GOOG, MSFT
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Comments (8)
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  • Pimust
    , contributor
    Comments (814) | Send Message
     
    Where's the analysis of the Business and Server&Tool divisions that bring in most of the money for MSFT today? Are you trying to pretend that they don't exist or that they don't play any part in the future of Microsoft?
    19 Apr 2013, 02:31 AM Reply Like
  • Bohsie
    , contributor
    Comments (886) | Send Message
     
    Author’s reply » If you read my article I was specifically talking about their windows division, 30% of their revenue, and their largest division. It is also the corner stone for many of their products (not all). Yes S&T is the second largest at 22% of its revenue, I feel that their windows product is the one that is being threatened to date, and if their Office software doesnt eventually move to Android or iOS operating systems, they could lose market share to a new competitor. I am not saying MSFT is going belly up, but I am saying that its looking more and more like they have lost their Operating System monopoly with little market share of tablets, and when tablets take over as the new mobile PC, MSFT could be scrambling and relying on other business units as they try to realign themselves or accept that they will be a shrinking company.

     

    Did you know that iPhone Revenue on its own in the last several quarters, has been more than all of MSFT's revenue? That in itself shows how vulnerable MSFT.
    19 Apr 2013, 10:25 PM Reply Like
  • Pimust
    , contributor
    Comments (814) | Send Message
     
    Windows is the second largest division of MS behind Business division both in revenue and income. What is especially strange when you think about the amount of bashing of Windows 8 the Windows division has been growing over 20% from the same Q last year. Entertainment and devices division has grown whopping 40% in revenue from last year.

     

    http://bit.ly/105vYHp
    20 Apr 2013, 06:28 AM Reply Like
  • Bohsie
    , contributor
    Comments (886) | Send Message
     
    Author’s reply » One, I am not bashing Windows 8, I think it was essential and smart for MSFT to build a common operating system for both mobile and PC devices. Second, what I am trying to point out is that I think it may be too late, and that MSFT will no longer have a monopoly on future PC operating systems (i.e. tablets & smart phones). As such they are under a lot of pressure to regain and find successful products, as we are on the brink of tablets taking over PCs. That is why I believe MSFT has begun producing Surface Tablets. More so, if a competitive word or spreadsheet app were (like cloud based Goggle Docs)to fill the void of Office on Android & iOS Tablets, MSFT may be at risk of losing that market as well. That said, I no longer see them as a blue chip, un-risky stock. I dont see GE going under in 3 - 5 years or their stock droping 50 - 80% in price, but I think MSFT is on some thin ice, and could possible see deep revenue drops worse case. From only 1 million surface tablet sales last quarter, against 20 million iPad sales, I believe they are not gaining ground. And it is interesting MSFT paying stock, it wouldnt be MSFT. That's all I am saying.

     

    And lastly, both the Windows & Business Divisions are the majority of the revenue for MSFT, which includes Windows and Office (Business Division), and are the two divisions that are threatened the most, which threatens the company by being over 50% of the companies revenue.

     

    Here is a quote as MSFT knows that Tablets are the future as well:

     

    "In a conference call to discuss the results, Klein said that Windows revenue has been affected by the shift from PCs to tablets, but he said Microsoft is confident Windows 8, with its redesigned, tile-based interface for touch devices, will do well."

     

    This means they will no longer have a monopoly on operating systems for Tablets. Do you really think that this will not affect Windows Revenue?
    20 Apr 2013, 08:54 PM Reply Like
  • tdekoekkoek
    , contributor
    Comments (42) | Send Message
     
    Definitely the wrong time to be short MSFT. Sure you might get lucky on some short term pullbacks, but MSFT is showing a breakout pattern here and the fundamentals look very good. Increasing revenues from multiple sources keep it from being overly vulnerable if one segment suffers. And clearly Windows won't suffer as they are successfully, albeit slowly transitioning Windows from being a PC only platform to the platform supported in myriad of devices including Smartphones, Tablets, Laptops and entertainment devices not to mention server products.
    21 Apr 2013, 10:49 PM Reply Like
  • zigazaga
    , contributor
    Comments (147) | Send Message
     
    I first became interested in shorting a stock when I saw that clip of Ballmer jumping and screaming on stage in an apparently psychotic state. Soon may be the time, methinks...
    11 May 2013, 09:57 AM Reply Like
  • Bohsie
    , contributor
    Comments (886) | Send Message
     
    Author’s reply » Still a bad time to short MSFT? I have to admit, I was surprised the stock soared to $35, as I was certain, investors could see the insanely steep hill MSFT would have to climb to gain shares in the mobile/tablet market. However, I knew that it would be a matter of time that the numbers would reflect the losing battle. Just like when RIM's playbook failed, it saw their share price tumble soon after, MSFT's $35 share price may have been its highest peak since 2008 for good with this news. As much as they are looking to regain and increase revenue with new services, and products, it may be too little too late. MSFT is no longer the safe dividend paying blue chip. There is a real risk that the share price may fall into the single digits within a year! And you can quote me on that one!!
    19 Jul 2013, 10:39 AM Reply Like
  • Bohsie
    , contributor
    Comments (886) | Send Message
     
    Author’s reply » tdekoekkoek,

     

    I am not short MSFT in the near term, I am short MSFT in the long run. With only 1 miilion Surface's sold, against 20 million iPads, and Samsung and Apple owning the majority of Tablet and Smart Phone market share, no matter what, MSFT will no longer have a monopoly. So you do not think that will effect revenue. And, they have alot of revenue to build to make up for that. And yes they are being quite aggressive right now, as they need to be, but when that revenue falls, it will fall quickly, just like RIM.
    22 Apr 2013, 03:41 PM Reply Like
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