THE MICROSOFT INVESTOR: Mobile Announcement Was A Dud

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MSFT shares flat this morning after strange phone announcement.
MSFT released some new phones yesterday–the “Kins”–an announcement that left Wall Street mostly confused.   MSFT currently trades at 13x Enterprise Value / Trailing Twelve Months Free Cash Flow. Upcoming catalysts include March quarter results (Windows 7).  Yesterday’s mobile announcement did not provide much confidence in a mobile recovery for the company.  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.

Really Microsoft, Really? (The Business Insider)
The Business Insider’s Henry Blodget just doesn’t get the strategy behind Microsoft’s big mobile announcement yesterday (for the record, neither do we).  Here is what has him scratching his head: 

  • (The phones) are not based on Microsoft’s new Windows Mobile software
  • Do not allow third-party apps to be built on them
  • Are aimed at “young people” (who, as far as we can tell, have phones coming out of their ears)
  • emphasise “social networking” (which was cool circa 2004)

Microsoft has to fight the mobile battle since it is such a large opportunity, but as Blodget points out the world just doesn’t need another smartphone (just ask Palm).  As a result, the Kin phones seem almost certain to be a flop.

Microsoft Has To Enter The Crowded Smartphone Market To Help Sustain Windows (JP Morgan)
JP Morgan analyst John DiFucci is slightly more positive. He writes “with the release of the Kin, Microsoft will become another provider in the crowded smart phone market (versus a provider of smart phone OSs only)…As more and more computing moves to mobile devices (where companies like Apple and Blackberry have gained much greater prominence), we believe a successful mobile strategy is a critical element that Microsoft needs in order to protect the relevance of the Windows platform longer term.”  We think Microsoft has largely let the mobile opportunity pass them by and are scrambling to respond to consistent share gains by Apple and Android as well as an entrenched RIM.  As a result, the Kin’s cloud-focused strategy still isn’t going to make it any easier to maintain Windows relevance as cloud and mobile computing grows.

Google Doc Upgrades Going After Office’s Jugular (Seattle PI)
Google upgraded its cloud computing software Google Docs yesterday with more features already available in Microsoft Office.  “Google has improved the import function for Google Docs, added document rulers and tab stops, and tweaked image wrapping…In Spreadsheets, users can now edit cells from the formula bar, auto-fill a cell, drag and drop columns, and more easily navigate among spreadsheets.”  As cloud software products becomes increasingly competitive to Microsoft Office, it will be harder for Microsoft to maintain share and, importantly, profits in the office-productivity space.  This transition will be slow, but it is a huge risk-factor for the company and stock going forward.

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