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Elop reportedly open to unloading Bing, Xbox; cloud Office apps updated

  • Stephen Elop, reportedly on Microsoft's (MSFT) CEO shortlists, would consider unloading the software giant's Bing and Xbox ops if given the top job, sources tell Bloomberg.
  • At the same time, Elop would make a larger priority of bringing Office to third-party mobile platforms. Microsoft has launched Office iPhone and Android apps (they require an Office 365 subscription), but has held off on launching iPad apps, and has said it won't do so until it develops a more touch-friendly UI for the cash-cow productivity suite.
  • If Elop (or a different Steve Ballmer replacement) decides to abandon Bing and Xbox, he might get plenty of support for the move. In his recent bullish note, Nomura's Rick Sherlund argued ditching the businesses, along with other moves, could boost FY15 EPS by 40%. Co-founder Paul Allen also wants Xbox and Bing to be unloaded.
  • Bing headlines an online services business that has lost billions in recent years, and the former Xbox unit (Entertainment & Devices) frequently alternated between making and losing money.
  • Bloomberg's report comes as Microsoft updates its free Office Web apps to support real-time collaboration, a feature that has long been a major selling point for Google Apps. Microsoft is also making Yammer's business social networking platform free to all enterprise Office 365 users; that could make life tougher for Yammer rival JIVE.
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Comments (24)
  • 11341
    , contributor
    Comments (48) | Send Message
     
    He messed Nokia , he will mess msft as well ........ Mulally will be a better choice
    8 Nov 2013, 09:21 AM Reply Like
  • northern_bald_eagle
    , contributor
    Comments (67) | Send Message
     
    Actually he saved Nokia from bankruptcy. Elop was the head of Office division that established Office as the dominant platform it is now. Mulally is a bit old to learn computer sciences on the job. Cars are very different animals than software and computer devices. If chosen he would have to rely completely on someone else to make decisions.
    8 Nov 2013, 02:09 PM Reply Like
  • sadams7008
    , contributor
    Comments (23) | Send Message
     
    I hope that he is not the next CEO...
    10 Nov 2013, 09:10 PM Reply Like
  • joesmileyyy
    , contributor
    Comments (26) | Send Message
     
    This idea about selling Bing and Xbox is so dumb. Why would you sell Bing when, after battling for 10 years, Bing is finally as good as Google? Why would you sell Xbox when it is your gateway into the living room TV set?
    Every tech company wants into the living room and the search/advertising markets. Microsoft selling it's assets there is just a dumb idea. I can't believe this would actually happen.
    8 Nov 2013, 09:37 AM Reply Like
  • Timezone
    , contributor
    Comments (78) | Send Message
     
    Xbox is entry to the home. It will be the game, converter box, and home controller in the future. It also brings kids to the Microsoft stores and adds excitement and good will for these future consumers. Insane to sell Xbox. Pure insanity!!! Bing is integrated into everything and needs to stay.

     

    These people must be Google and Apple plants to kill Microsoft. There should be an investigation.
    8 Nov 2013, 10:00 AM Reply Like
  • DougRk
    , contributor
    Comments (1621) | Send Message
     
    Can we all agree, regardless of what MSFT sells or not, it just doesn't have any meaningful driver going forward? What does this company do or stand for? Other than more effectively managing the decline of the Windows and Office cash cows.
    8 Nov 2013, 10:09 AM Reply Like
  • Transcripts&10-K's
    , contributor
    Comments (915) | Send Message
     
    "Other than more effectively managing the decline of the Windows and Office cash cows."

     

    Typical nonsense; MBD - the segment that Office is a part of - increased it's operating income by nearly $5 billion over the past five years, to $16.1 billion in fiscal 2013. Windows division operating income is flat over the same period after adjusting for onetime items for FY13.

     

    If you want a meaningful driver, pull up the 10-K's for the past 5+ years and look at Server & Tools; that segment isn't slowing down anytime soon.

     

    You really should look at the SEC filings before making such statements...
    8 Nov 2013, 11:01 AM Reply Like
  • DougRk
    , contributor
    Comments (1621) | Send Message
     
    Investing is forward looking. Tell me where you think the Office and OS segments will be 5 years from now and I'll perk up. I see decline.
    9 Nov 2013, 09:52 AM Reply Like
  • Transcripts&10-K's
    , contributor
    Comments (915) | Send Message
     
    "Tell me where you think the Office and OS segments will be 5 years from now and I'll perk up. I see decline."

     

    Consistent, profitable growth, year after year over the past decade wasn't a fluke - and while simply extrapolating those figures would clearly be misguided, it offers a good starting point for looking at the segments - especially when they continue to grow with no sign of slowing (and that's without considering the impact of the financial crisis, which has slowed / delayed investment).

     

    Why do you think Office (or better yet MBD as a whole) will decline? The segment continues to grow - why will this suddenly not only stop, but change directions? I think MBD (or what was formerly known as MBD) will continue to grow mid-single digits, with Server & Tools fighting for double digit annualized growth. Do you have any thoughts on the Server & Tools segment? Last year it generated more than $8 billion in operating income for MSFT - good for a five year CAGR (since FY08) of nearly 15%.

     

    For Windows, I think some decline could happen - but not nearly as quickly as some predict; if PC sales continue to exceed 300M units per year for the forseeable future (as estimated by Gartner / IDC), Windows will continue to be a cash cow.

     

    The commercial segment grew 10% in Q1 (Office products were +11%), with Lync, SharePoint, and Exchange collectively growing double-digits. Enterprises are continuing to commit to Microsoft for the long term via EA's; Office 365 and Azure seats are growing triple digits

     

    Would you care to quantify or explain why you see decline? If your rationale is declining PC sales, I'd be interesting in hearing an estimate for 2015 - as well as why you believe your information is more reliable than what is estimated from Gartner and IDC (they are at ~340M and ~325M, respectively, for 2015).

     

    They could certainly be wrong, and have been at times in the past; hopefully your argument has a bit more to it than "I see decline".
    9 Nov 2013, 09:05 PM Reply Like
  • DougRk
    , contributor
    Comments (1621) | Send Message
     
    Through 10, 11, and 12, we saw revenue declines in the Windows division. 13 showed an increase in revenue, but a 15% decline in income. That makes 3 consecutive years of such. Windows still represents 40-50% of the company's income. I don't see Win8 gaining enough traction elsewhere to offset the decline in PC sales-- plain and simple. I also believe we will see the nascent movement for Android on the desktop get larger than anyone- Gartner and IDC included- expected.

     

    Office is mixed in MBD's numbers and I haven't dug deep enough to break those out of the statements. But my belief is that competition is too stiff for Office to grow appreciably. Server and Tools is the heart and soul going forward and has been stellar the last few years. But it's still only 25% of income.

     

    MSFT is an amazing cash machine and has been for almost 30 years (!). Truly mind boggling. But we're looking for growth and I don't see a consumer initiative which can make that happen. The IBM analogy is apt. DEC comparisons are absurd. This is a solid company, just not a growth machine any longer.

     

    You wrote a good defense of your position, thanks.
    9 Nov 2013, 11:50 PM Reply Like
  • Transcripts&10-K's
    , contributor
    Comments (915) | Send Message
     
    Thanks for writing back, and agree with some of your points (Android / Chrome OS on the desktop truly could be a problem).

     

    One thing:

     

    "Through 10, 11, and 12, we saw revenue declines in the Windows division."

     

    Windows division revenues were $19.49 billion in FY2010, $19.06 billion in FY2011, $18.40 billion in FY2012, and $19.24 billion in FY2013; I think the more appropriate word would be flat / stagnant (unless you have a good reason to look at the last three years excluding the most recent one?)
    10 Nov 2013, 08:56 AM Reply Like
  • DougRk
    , contributor
    Comments (1621) | Send Message
     
    Well I mentioned that revenue increased in 13, but with income falling appreciably that year, it's clear they had to juice marketing and/or reduce margins. That's a bad game. The "3 consec years of such" was a reference to income declining each year from 10 to 13. It's the plain argument that the greatest source of strength for the company has reached an inflection point, IMO. Hard to replace that cash cow.

     

    Certainly the argument can be made that the declines are small, and therefore can be characterized as flat. But again we're trying to find growth plays. Or at least that's my goal. As a divi play, maybe. If the new head indicates such.
    10 Nov 2013, 11:39 AM Reply Like
  • Transcripts&10-K's
    , contributor
    Comments (915) | Send Message
     
    "Well I mentioned that revenue increased in 13, but with income falling appreciably that year, it's clear they had to juice marketing and/or reduce margins."

     

    I'm not sure they had to juice marketing - but they decided to (with much tied to the Surface launch); it's safe to say that people will continue to buy computers - and that they will come with 7 or 8 - regardless of how many commercials Microsoft runs.

     

    Whether or not that marketing push continues is less clear, particularly in the post-Ballmer world.

     

    "Certainly the argument can be made that the declines are small, and therefore can be characterized as flat. But again we're trying to find growth plays. Or at least that's my goal."

     

    Well, it's price AND value, not one or the other; I'd love to buy a fantastic business - one with outstanding ROA & ROE - with about 25% of the market cap covered by cash at a single digit earnings multiple (like Microsoft was a few months ago). Of course it's likely those opportunities will be with names like MSFT or AAPL (where the future always is meaningfully uncertain) than for PEP, KO, or JNJ (where most of the risk is on the margins).

     

    Many people would rather buy something like Waste Management - trading at more than 20X earnings, with little / no growth, and an ever increasing payout ratio - than MSFT; they think it's "safer", but fail to recognize the valuation risk (an earnings yield below 5% will not stand if the 10-year moves higher in the coming years).

     

    You can back out Windows completely and still make a pretty solid case for investing in MSFT (again, before the recent increase; my cost basis is under $30, and I wouldn't add anywhere near $38).
    10 Nov 2013, 11:50 AM Reply Like
  • DougRk
    , contributor
    Comments (1621) | Send Message
     
    Fair enough, value as well. Sub-$30 was indeed a good play and I was mildly interested up to $32 or so. Am surprised it has run to $38. Excellent discussion, thanks.
    10 Nov 2013, 08:17 PM Reply Like
  • omnimoeish
    , contributor
    Comments (488) | Send Message
     
    Elop...can we all just agree to do the opposite of whatever he decides is right. I get that Microsoft is too stupid to realize he's a moron, but make him CEO? This guy has no vision whatsoever.

     

    I'm torn on getting rid of Bing, I think if Microsoft tied it together more with their products it might be worth it. For example Google is using google results for their Google Now, Google maps, now even calls are googling the phone number automatically and telling you who it is in KitKat. Eventually Microsoft is going to have to compete with that if they want decent market share in mobile.

     

    Xbox has so much potential. They need someone with vision to take advantage of it, but it's not a big money loser.

     

    I think Xbox actually does have some halo effect (get it?). The one cool thing about Microsoft if you're an adolescent or young or anyone that's not forced to use Microsoft at work but thinking about using it at home is the fact that Microsoft still has a strong foothold in gaming and a lot of respect and excitement in the gaming world. Now they certainly shot themselves in the foot with the way they tried to DRM to your eyeballs and control everything about when and how you play your games on the new Xbox. I kid you not when I say it took about 5 minutes to read through a summary of the rules. They retracted most of the rules (the term "popular demand" doesn't even paint a proper picture). But I still think Microsoft has a little cache with some of the younger crowd and getting rid of Xbox is going to be losing long term business.

     

    Besides that, Apple is starting to price their computers more aggressively than in the past. I'm not sure if they're going to jump to 90% market share or anything, but a declining PC environment with increased pressure from Apple is just going to chip away. Microsoft needs to diversify with vision. I would say buy Netflix, but they have such a history of ruining great products and companies they buy.

     

    Elop is a bean counter, that's what he did at Nokia and it just ended up crashing down. Tech companies can't be run bean counters. Elop might be better suited for a toilet paper company where cutting costs is all that matters.
    8 Nov 2013, 10:18 AM Reply Like
  • Alan1967
    , contributor
    Comments (238) | Send Message
     
    First thing Elop or any new CEO should do is fix Win8. Making Office avail on all platforms and in the cloud needs to be do, otherwise an alternative could appear. But I wouldn't sell XBox,since that is an in into the living room. Maybe make a TV-centric miniXBox for non/light gamers.
    8 Nov 2013, 11:32 AM Reply Like
  • andrewvancity
    , contributor
    Comments (19) | Send Message
     
    Xbox can become a great ecosystem in the future
    8 Nov 2013, 11:42 AM Reply Like
  • anil92691
    , contributor
    Comments (428) | Send Message
     
    This is not a political office. Elop should be taken of the list if he indeed talked to the media or used other sources to leak this information.

     

    As for unloading Bing and Xbox. Dumb idea.

     

    Microsoft needs to grow in gaming and it needs to have a search engine and have a presence in every area of computing and software. If Microsoft thinks this is hurting their margins then spin them out each as an independent company with Microsoft owning 80% of the shares that may not be diluted without Microsoft's permission and let them run independently. They will probably flourish without the large organization and bureaucracy.
    8 Nov 2013, 12:07 PM Reply Like
  • Otto70
    , contributor
    Comments (11) | Send Message
     
    This idea of spinning off/selling the xbox division is stupid - so stupid that only MSFTs biggest competitors would look forward too. They might even have planted the story. "Sources tell Bloomberg..."
    10 Nov 2013, 10:41 AM Reply Like
  • Amateur Investor
    , contributor
    Comments (48) | Send Message
     
    I like elop, he shows outstanding courage in taking decisive action when needed in the past. my thoughts on xbox spin off (I apologize for the length):

     

    "spinning off" xbox would be a foolish and un-msft mistake.

     

    xbox is not just a game console. xbox is a software platform residing on a specific set of hardware devices, including game console and kinect. it enables cummiincation, search and entertainment in the home with realtime access to the user's personal cloud content. it is activated casually by voice, gesture, controller and input via phone or tablet. it communicates with home network all of these apply equally to business use, if that is chosen.

     

    xbox evolution is a process leading to the digital home in which information is accessed routinely by voice, gesture, other device.

     

    that evolutionary process has begun.

     

    xbox business model has a competitive advantage. once you have your entertainment and information content channelled via xbox, it is a burden to switch to different hardware and software. switching costs are a competitive advantage, and the progressive invasion of the living room means microsoft will have a long lasting opportunity to provide other related products to families. it is the home ecosystem, as it were, which involves the familiarity of the products to all family members, but also creates the switching costs.

     

    disposing of xbox now because it is not as profitable as other parts of msft would be shortsighted. in order to take advantage of the competitive advantage of the xbox business model, first xbox must exist in the consumer living room.

     

    one key feature of msft is that its leadership has had the insight and courage to commit the resources needed, with no holds barred, to establish a market presence, aiming to be a dominant market share, in whatever area was considered to be strategically key to the FUTURE. Ignorant revisionists take for granted that msft was always dominant in windows and office, and has failed in subsequent products. in fact msft fought intensely to win markets in every area from the very beginning. msft struggled even to get paid initially in the 19702. windows never was secure in the market from the 1980s until finally windows 1995. office had to catch up to previous entrants (eg: visicalc). networking (novell) etc.

     

    xbox is a venture into the home ecosystem and once market dominance is attained here , it will acct synergistically with other msft products. for example, take mobile phones. one key advantage of the iphone was: while users used a blackberry at work, they still wanted a iphone for entertainment (itunes etc). when using an iphone for work, no entertainment accessary is needed. xbox provides the entertainment ecosystem that accompanies the business mobile phone. whereas office and windows are reasons to choose a windows phone, a strong and pervasive xbox will be a distinct additional reason to choose windows phone. using windows phone becomes more inevitable.

     

    one of the key features of msft leadership is that market opportunities are envisaged in terms of: what will users actually NEED in the future, how can we build products that servee that need, and put our products in a position where they are the standard for that need and MUST be used for that need. what do we build NOW, to establish that position in the FUTURE. msft has never simply tried to build gizmos that are neat, and you would recommend to your friends. becasue that is no different from any other company.

     

    analysts who want to spin off xbox are merely thinking about current financial accounting factors. they are not thinking about the long battle to establish market dominance in the home ecosystem. no analyst would be interested in that type of long term struggle, just as management consultants are expert at spinning off or rearranging a company's assets, taking a commission to to so, but no consultant ever created a novel asset.

     

    true, msft has needed better management to avoid senseless duplication of efforts (eg: windows media player, windows media center, zune, xbox video, xbox music. Windows live mesh, windows live sync, skydrive, groove, etc etc). but that does not mean that the battle to extend msft franchises into new markets, in a characteristically PERMANENT fashion, needs to be abandoned.

     

    msft will continue venturing into new markets and enabling individuals and business to reach their full potential long into the future, if resources are dedicated in a characteristically intense and unrelenting devotion to the mission, while thinking in terms of building a really sound, high margin business model ithat is impregnable, as msft has always tried to. While selling xbox hardware is not as high margin, as time passes, the content sold on xbox is more and more profitable for a given unit.
    8 Nov 2013, 12:26 PM Reply Like
  • keentolearn
    , contributor
    Comments (132) | Send Message
     
    How can a guy who sunk the giant NOK Titanic is even considering the top job in MSFT? Shareholders of MSFT be aware.
    8 Nov 2013, 01:51 PM Reply Like
  • jazzz_man
    , contributor
    Comments (3) | Send Message
     
    Some people looking for short term pop in the stock vs long-term value creation. Well street just wants money NOW, not a good strategy for company success
    9 Nov 2013, 12:05 AM Reply Like
  • TDOB70
    , contributor
    Comments (26) | Send Message
     
    Selling the XBox division would be extremely short sighted given that the Xbox One will more than likely be the last iteration of hardware for the platform. Following this the services will increasingly become software and cloud based across many potential devices for providing all the rich offerings to the lounge room and entertainment sphere. Something that Microsoft has built up over 10 years now. These consumer and entertainment based software/ cloud offerings will be integral for competing with the likes of Google and Apple. If Elop's plan is to focus more on software than this move would not make any sense at all.
    10 Nov 2013, 07:24 PM Reply Like
  • rjgood
    , contributor
    Comments (233) | Send Message
     
    The LAST thing that the new MSFT CEO needs to do is to commoditize MSFT! Ballmer just spurred MSFT into innovation & team cooperation (with the re-org.) Now is the time to be bold, not to be conservative!

     

    Turning MSFT products into a commodity basically puts MSFT on the defensive...and you can only play defense for so long before attrition grinds profits into dust. Look at the auto industry past, innovation turns to commodity turns to oligopolies turns to cannibalization (AMC, Land Rover, Hummer, Jaguar.) Government bailouts when the economy softens.

     

    MSFT needs an innovator that employs a short term execution (Office on iPad, get WP8 to 15% marketshare), mid term innovation (unified ecosystems, SmartWatch) and long term revolution (gesture driven TVs, PCs, Cars…smart household appliances.)

     

    As said above,
    * Xbox is an open door to people's living room. The living room is the next battlefield now that the smartphone/tablet war is cooling down.
    * Bing should be considered a cost center, as it powers MSFT products and does not need to directly compete with google.com. It SHOULD lose money, MSFT has never succeeded at advertising.

     

    Jeez Elop, this isn’t NOK. MSFT has nothing but winning cards…play them!
    11 Nov 2013, 10:49 AM Reply Like
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