The move marks another unhappy milestone for Microsoft, which has failed to persuade investors that it can dominate the future of technology as it did in the past, and has seen its share price stagnate over the past decade.
I'm sure much of that has to do with not just failed products, but a lack of fortitude in sticking behind products, advertising them effectively (building the brand) and growing them into the "next big thing".
These types of articles are a serious problem. Stock prices reflect confidence in a company. The underlying "fundamentals" are only relevant insofar as they drive investors to buy and hold the stock. Negative articles about a company's business performance depress the stock by convincing investors that other investors will sell the stock.
But articles like this are a kind of gut-shot: They directly state that investors don't like the stock. This kind of thing can accelerate a stock's fall from grace, leading to more negative articles, more bearish sentiment, and the whole thing becomes a vicious cycle.
This is very different from an article being bearish about the company's management or products. You can hire new managers. You can fix broken product, buy new products, or develop new products. But you can't buy investor confidence (as Microsoft has proven with their dividends).
No position, and I don't like the stock, but my point is that the fundamentals do matter. MSFT remains a very large and profitable company, and it is at a stage where that influences valuation much more than sentiment does.
Except all of Microsoft's profitable business lines are in a dying industry, the personal computing industry. It's kind of an ironic role-reversal for IBM and Microsoft given their history and the way MS became the behemoth it is.
And my point is that the fundamentals matter insofar as they drive investor beliefs about other investors. I think what you are saying and what I am saying are compatible. As to whether their "fundamentals" will outweigh a decline in confidence brought about by this kind of negative press coverage... If I knew what would happen for sure, I could make a comfortable living as an investor.
Do vicious downward cycles actually happen? I'd expect that as soon as the stock price dipped below the value of the expected discounted dividend stream the smart money would swoop in, and could profit even without having to care about the future stock price.
EDIT: I should point out that this doesn't happen with vicious circles or rising stock prices in any reliable way. Well, people shorting the stock can have sort of the same effect but not as well.
Some companies manage to get by on investor's hope for future huge dividends someday without ever having to issue any right now, like Apple, but I don't think its a loss for society is investors lose their confidence in "someday" and start forming their expectation based on past performance. So I guess I'm saying that to the extent that negative articles can and do drive down a company's stock price those of us who haven't invested in them should be happy.
This is a very bad point for Microsoft. They have a tremendous stable of researchers, tremendous market dominance, fairly solid software, and they seem to be unable to capitalize on that.
The difference between other tech companies and Microsoft is that Microsoft is no longer a growth company. That isn't necessarily bad.
IMO, it's reasonable to have a slow-growth company in a mature market that pays a nice dividend (Microsoft's should be higher though).
The danger is that Microsoft's utter dominance is getting chipped at from the margins. Are small companies or individuals buying Office like they once did? Is Apple's growth in the tablet space eventually going to put a bullet in the traditional PC?
Ah, but it could be. There are plenty of other markets left to dominate under Microsoft's general heading of "we make software for stuff", especially if they don't mind making hardware too (see Zune, Xbox).
If they're worried about the tablet market, why not create their own tablet? Why did they make one attempt at the iPod market and then give up? Why aren't they pushing their Windows Mobile harder? Why aren't they doing more to go toe-to-toe with Apple? They have fifty billion dollars in cash, why not do something with it?
There are plenty of other markets left to dominate under Microsoft's general heading of "we make software for stuff", especially if they don't mind making hardware too.
There are tons of connectivity issues they can solve, or help solve through 3rd parties. This is also what Near Field comms are about.
Microsoft does a good job of making an easy to manage server/desktop ecosystem for any sized business (assuming they have at least some IT.) They do it better than anyone. Trying to break into other markets is if anything a mark that the management doesn't recognize their core competencies and is trying to overreach. What they should be working on is next generation CRM tools, directly competing with Oracle, IBM, and the businesses that rely on their overpriced stacks.
We could have had the same discussion about IBM in 1986.
Think about it. Microsoft is handcuffed by their success, because anything that threatens the holy trinity of OEM Windows Licensing, Office and corporate EAs is not going to be successful. The impact to short-term bottom line is too much...
Look at 1986 IBM again as the example.
Do you want to be the 1986 IBM salesmen who sells some PC-based application system for $500k to a bank... a bank who may replace the IBM PCs with Compaqs in 1988? Or do you want to be the guy who sells a $10M mainframe/software package with multi-year service agreements?
Your point about IBM confuses me. Are you saying that Microsoft is going to be like IBM (a slow decline for another decades, followed by a huge boom ten years later)? Or that Microsoft should follow IBM's example by giving up on the consumer market?
There's many ways to make a buck -- Apple has chosen one, IBM another, and neither is obviously better than the other.
The desktop and the laptop are really good embodiments of a workstation form factor. The growth of tablets isn't at the expense of the workstation. It's more the realization that there are other niches. There are other work patterns that are better served by other form factors.
Think about it. How many work patterns actually amount to writing down information, then going to a workstation and transferring the data? Lots.
You're not looking at the big picture. The PC is dead -- it's a commodity now.
I work in a big enterprise IT shop with tens of thousands of PCs. We have management software that meters application utilization. 85% of application runtime on PCs is devoted to: Microsoft Word, Outlook and IE. Most of the other 15% are in-house apps, with a long tail of various tools that people use.
Yet the per-seat cost of a desktop is over $100/year for basic licensing, $75/year for Office and about $250/year for hardware, assuming a 4-year refresh cycle. For 10,000 people, that's $4.25M of annual cash flow just to provide clients to workers -- no infrastructure costs, no operational staff costs. (Those costs are easily $50-100/seat, depending on the org)
That's a ridiculous amount of money. So there's a huge opportunity to offer a solution that improves productivity by hacking away at that cost. Compare the management features of an iPad/iPhone/BlackBerry to ChromeOS -- they are nearly identical. Lower labor costs plus less licensing means enterprise adoption. Technically, the solution just needs to be "good enough".
Retraining costs associated with switching to a different platform would be approximately an order of magnitude higher - i.e. you're looking at > 10 years to break even assuming zero cost for the new system.
The real savings is finding ways to do work more efficiently with newer form factors. Employee time is expensive. If having a small mobile form factor can save steps and a trip back to the desk, it's a win for the big enterprise.
I've spent a ton of time migrating people from different mail platforms to a single, larger platform. When people fight to hang on to Lotus Notes or GroupWise, they make statements like that and roll out scary cost figures, etc.
At the end of the day, you train the admin assistants, a few key users, etc for 1/10 of the cost the people estimate. After the first week of chaos, you start hearing from regular users how much better the new system is.
Millions of people figure out how to use iPads and GMail without any documentation, IT department or training classes. Enterprises are no different.
Since you invited me to call you naive, you're being naive :o) The tablet market is only a little over one year old and has already exploded. Considering their age, tablets are pretty cheap and versatile.
Further, they aren't meant to replace PCs. That's not the "bullet" that the parent was talking about. The bullet is that we no longer need to buy one for every room just to take advantage of their basic functions. The supply has reached commodity status while the demand is being replaced.
What do you mean unable to capitalize? They have a 32% profit margin (for comparison, Apple has 22%) and their dividends are considerably higher than the interest on your savings account.
Why should they care about their stock price? It's not like they're in dire need of a stock emission. They have a cool $20 billion in annual profit flowing in. Their employees won't mind that much either, since a low stock price means they get more shares and with a P/E ratio of under 10 they're likely to go up eventually.
Ultimately, they should care about the stock price because raising the stock price (or, more directly, the value of the company) is what we (the shareholders) pay them (the management) for.
"Here you go" say the shareholders (via the board) to the management. "Here's a freaking huge salary. Now go find ways to make my company bigger."
That doesn't mean they should care about day-to-day fluctuations in the share price, but certainly ensuring long-term growth in the share price is exactly what we're paying 'em to do.
(And I don't know why I used "we" all through there, because I'm not actually a MSFT shareholder.)
True, but only 2.65%, which isn't enough to justify zero growth.
Actually I'm looking at the historical MSFT price right now, and it's interesting. Of course they had huge growth in the 90s, hitting twice its present value at the end of '99, before rapidly crashing back down to its present value by 2001. It's been flat ever since. In 2003 the company said "Screw it, we might as well pay dividends" and they've been putting out a slowly-increasing dividend ever since. Other than that, the lack of change over the last decade has been remarkable.
Interestingly, 2000 was also the year that Ballmer replaced Gates as CEO. Maybe what Microsoft really needs is a CEO with some vision.
2000/2001 was also the years of the dot com bubble where every tech company tanked in some way. I think this has more to do with it than Ballmer's arrival (it was the time of the hugely successful and popular windows 2000 and XP, ballmer's damage if any would only be seen years later).
Oh, for sure every tech company tanked in 2000, but the interesting thing about MSFT is that they never recovered. The stock price graph is astounding -- twenty years of huge exponential growth followed by a 50% dip and ten years of completely static prices (and yes, a steady but relatively small dividend).
That was a lousy time to take over as CEO, true. However, the next decade has had plenty of opportunity - Google went from not much to a $500 billion company, and Apple went from dying to dominant. With a CEO who had a full vision, they could have added huge amounts of value to the company since then. Instead they've been coasting along and taking wrong turns.
The thing though is that microsoft actually pays dividend to its shareholder, and a good amount at that. If you have apple stock then yes you better hope they rise because that's the only way they will make you money, but it is not so for microsoft's.
It is incredible how common the fallacy is that stock price is all there is. You see people spouting numbers based on stock price changes and ignoring dividends and it's a pretty obvious sign they don't know what they are talking about. If you give return values without including dividends, you are giving junk numbers.
I mean that they have stabilized, and the biggest and most creaky company (historically speaking), has passed them up. The old saying was, "No one got fired for buying IBM".
It is a signal that MS is not using its dominance to get into new markets, grow products, and generally be an competetively active business.
"Facebook passes Microsoft's market cap" - Thats 3-5 yrs down the road. FB will go up, MS down, and walla. Nobody lasts forever. Apple won't, FB won't, and MS isn't.
Those once again predicting Microsoft's doom might keep in mind that Microsoft remains highly profitable and that 20 years ago pre-internet pundits were greatly exaggerating rumors of IBM's death in the wake of multibillion dollar losses.
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[ 3.2 ms ] story [ 92.4 ms ] threadI'm sure much of that has to do with not just failed products, but a lack of fortitude in sticking behind products, advertising them effectively (building the brand) and growing them into the "next big thing".
http://www.youtube.com/watch?v=lVMy0PFr8no
Perhaps not a bad CEO, but the wrong CEO for this company right now. He'd probably do better at a place like GE.
But articles like this are a kind of gut-shot: They directly state that investors don't like the stock. This kind of thing can accelerate a stock's fall from grace, leading to more negative articles, more bearish sentiment, and the whole thing becomes a vicious cycle.
This is very different from an article being bearish about the company's management or products. You can hire new managers. You can fix broken product, buy new products, or develop new products. But you can't buy investor confidence (as Microsoft has proven with their dividends).
EDIT: I should point out that this doesn't happen with vicious circles or rising stock prices in any reliable way. Well, people shorting the stock can have sort of the same effect but not as well.
Some companies manage to get by on investor's hope for future huge dividends someday without ever having to issue any right now, like Apple, but I don't think its a loss for society is investors lose their confidence in "someday" and start forming their expectation based on past performance. So I guess I'm saying that to the extent that negative articles can and do drive down a company's stock price those of us who haven't invested in them should be happy.
Two interesting questions: Are there big tech companies that you wouldn't say that about? Why doesn't it matter for those companies?
IMO, it's reasonable to have a slow-growth company in a mature market that pays a nice dividend (Microsoft's should be higher though).
The danger is that Microsoft's utter dominance is getting chipped at from the margins. Are small companies or individuals buying Office like they once did? Is Apple's growth in the tablet space eventually going to put a bullet in the traditional PC?
Ah, but it could be. There are plenty of other markets left to dominate under Microsoft's general heading of "we make software for stuff", especially if they don't mind making hardware too (see Zune, Xbox).
If they're worried about the tablet market, why not create their own tablet? Why did they make one attempt at the iPod market and then give up? Why aren't they pushing their Windows Mobile harder? Why aren't they doing more to go toe-to-toe with Apple? They have fifty billion dollars in cash, why not do something with it?
There are tons of connectivity issues they can solve, or help solve through 3rd parties. This is also what Near Field comms are about.
Think about it. Microsoft is handcuffed by their success, because anything that threatens the holy trinity of OEM Windows Licensing, Office and corporate EAs is not going to be successful. The impact to short-term bottom line is too much...
Look at 1986 IBM again as the example.
Do you want to be the 1986 IBM salesmen who sells some PC-based application system for $500k to a bank... a bank who may replace the IBM PCs with Compaqs in 1988? Or do you want to be the guy who sells a $10M mainframe/software package with multi-year service agreements?
There's many ways to make a buck -- Apple has chosen one, IBM another, and neither is obviously better than the other.
Call me naive, but I have a really hard time seeing the traditional PC going away. Tablets just aren't cheap or versatile enough to replace PCs.
Think about it. How many work patterns actually amount to writing down information, then going to a workstation and transferring the data? Lots.
I work in a big enterprise IT shop with tens of thousands of PCs. We have management software that meters application utilization. 85% of application runtime on PCs is devoted to: Microsoft Word, Outlook and IE. Most of the other 15% are in-house apps, with a long tail of various tools that people use.
Yet the per-seat cost of a desktop is over $100/year for basic licensing, $75/year for Office and about $250/year for hardware, assuming a 4-year refresh cycle. For 10,000 people, that's $4.25M of annual cash flow just to provide clients to workers -- no infrastructure costs, no operational staff costs. (Those costs are easily $50-100/seat, depending on the org)
That's a ridiculous amount of money. So there's a huge opportunity to offer a solution that improves productivity by hacking away at that cost. Compare the management features of an iPad/iPhone/BlackBerry to ChromeOS -- they are nearly identical. Lower labor costs plus less licensing means enterprise adoption. Technically, the solution just needs to be "good enough".
Retraining costs associated with switching to a different platform would be approximately an order of magnitude higher - i.e. you're looking at > 10 years to break even assuming zero cost for the new system.
I've spent a ton of time migrating people from different mail platforms to a single, larger platform. When people fight to hang on to Lotus Notes or GroupWise, they make statements like that and roll out scary cost figures, etc.
At the end of the day, you train the admin assistants, a few key users, etc for 1/10 of the cost the people estimate. After the first week of chaos, you start hearing from regular users how much better the new system is.
Millions of people figure out how to use iPads and GMail without any documentation, IT department or training classes. Enterprises are no different.
Further, they aren't meant to replace PCs. That's not the "bullet" that the parent was talking about. The bullet is that we no longer need to buy one for every room just to take advantage of their basic functions. The supply has reached commodity status while the demand is being replaced.
Because they failed to gain a foothold on any growing market. Or even find them before they exploded.
And the few they did (mobile - they took Palm's crown in the early 2000s) they fumbled completely.
Why should they care about their stock price? It's not like they're in dire need of a stock emission. They have a cool $20 billion in annual profit flowing in. Their employees won't mind that much either, since a low stock price means they get more shares and with a P/E ratio of under 10 they're likely to go up eventually.
Ultimately, they should care about the stock price because raising the stock price (or, more directly, the value of the company) is what we (the shareholders) pay them (the management) for.
"Here you go" say the shareholders (via the board) to the management. "Here's a freaking huge salary. Now go find ways to make my company bigger."
That doesn't mean they should care about day-to-day fluctuations in the share price, but certainly ensuring long-term growth in the share price is exactly what we're paying 'em to do.
(And I don't know why I used "we" all through there, because I'm not actually a MSFT shareholder.)
Actually I'm looking at the historical MSFT price right now, and it's interesting. Of course they had huge growth in the 90s, hitting twice its present value at the end of '99, before rapidly crashing back down to its present value by 2001. It's been flat ever since. In 2003 the company said "Screw it, we might as well pay dividends" and they've been putting out a slowly-increasing dividend ever since. Other than that, the lack of change over the last decade has been remarkable.
Interestingly, 2000 was also the year that Ballmer replaced Gates as CEO. Maybe what Microsoft really needs is a CEO with some vision.
It is a signal that MS is not using its dominance to get into new markets, grow products, and generally be an competetively active business.