THE MICROSOFT INVESTOR: Will Kids Flock To Buy The Kin Phone Next Week?

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MSFT down with the market in rough morning for stocks (thank Greece).  The stock has rallied with the Windows 7 release, but over the long haul, we think Microsoft is in a challenging spot, as the world moves away from PC-based computing toward cloud and mobile computing.  The next major catalyst is Office 2010.  MSFT currently trades at 15x 2010E P/E – inexpensive compared to historical trading multiples, but Microsoft’s rapid growth days are likely behind it.

Next Week Is The Big Kin Launch (Slashphone)
Business blog Slash Phone found a Verizon report that pegs May 13 as the launch date for Microsoft’s new Kin phone (next Thursday).  The Kin phones will launch in the US on Verizon and Vodafone in Germany, Italy, Spain and the U.K.  Microsoft’s goal is to sell the phones to young people by touting their social networking features.  We are highly sceptical the phones will be a hit.  How does Microsoft expect to win over kids with social network features, but not let them instant message, play games, or customise their favourite social network sites and features through apps?  Never mind that Apple is once again stealing all the thunder with the blizzard of reports out this week lauding its 1 millionth iPad sold.

Internet Explorer Share Keeps Slipping As Google Chrome Gains (Seattle PI)  
Microsoft’s Internet Explorer lost share of the browser market again in April.  This trend has been occurring for a while as Firefox and Safari has taken some of the pie.  In April. moreover, Google’s Chrome gained more sizable share of the market – growing to 6.73% from 6.13%.  Chrome won’t be surpassing Explorer (or Firefox) anytime soon, but the move is yet another example of Google going after a Microsoft stronghold and having some early success doing it. 

More Positive Tech Data: Semiconductor Sales Up In March; Double-Digit Annual Growth Looking Likely (WSJ)
By now it should be clear that tech activity in Q1 was strong.  This morning Research firm IDC added additional data when it reported that semiconductor sales rose 4.6% in March over the previous month, indicating growth accelerated throughout the quarter.  March’s sequential growth was the second-highest since Novermber 2007.  The solid results were enough to make IDC “cautiously optimistic” that annual 2010 growth would exceed the 10% estimate it made in November 2009.  We should point out though, that business sales were slower than consumer sales.  This is a long-term risk for Microsoft, as its Windows enterprise franchise is fighting to maintain share amidst an increasing number of competitors.

Software As A Service (SAAS) Margins Could Exceed 50% Long-Term (UBS)
UBS analyst Brent Thill attended the AlwaysOn OnDemand 2010 conference on SAAS/Cloud Computing and had the following takeaways: 1) mainstream customer adoption (large corporations) has accelerated in the past twelve months; 2) most panelists expect operating income margins to exceed 50% long-term; 3) Amazon’s AWS cloud service is being used increasingly by both large companies and scrappy start-ups.  Big-picture this is positive for Microsoft, which is pushing its own cloud product Azure.  However, this is a hot, crowded space, with venture capital flowing aggressively into new companies.  Microsoft has a difficult road ahead of it as the company attempts to maintain its client-based Window franchise while also moving into cloud computing.

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