THE MICROSOFT INVESTOR: Microsoft Needs A Wake Up Call

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MSFT Rising With The Markets
On the heals of decent economic numbers (jobless claims, trade deficit, etc.) and ECB intervention in the ongoing European debt crisis, the markets are bouncing back after yesterday’s technical breakdown. Shares of MSFT are up with the rest of the recovering tech. Upcoming catalysts include Windows 8 and entrance into the tablet market; Windows Phone 7 / Mango rollout and adoption with hardware partner Nokia; strides against current market leaders in cloud computing; making money in the online business, including integration of Skype and improving the search / display business; and continued evolution of Kinect and next generation Xbox console. The stock currently trades at 7.1x Enterprise Value / TTM Free Cash Flow.Goldman Trims Estimates Because Of Flooding In Thailand? (Barron’s)
Goldman Sachs analyst Heather Bellini trimmed her estimates slightly for Microsoft’s holiday quarter and full-year revenue outlook to reflect the likelihood of lower shipments of PCs as a result of floods in Thailand. She sees total revenue of $20.8 billion this quarter, down from $20.9 billion, and $74.3 billion for the fiscal year ending in June, down from a prior $74.8 billion. EPS for this quarter drops by a penny to $0.75, and to $2.70 from $2.73 for the full year. Splitting hairs a month into the quarter, but ok.

Microsoft, Yahoo And AOL Team Up On Display Advertising (Reuters)
Yahoo, Microsoft and AOL finally agreed to a display-advertising-selling deal that has been in the works for months. The three companies will team up and share technology in an effort to reach more consumers. A release says the trio will be “integrating one another’s real-time bidding technologies to facilitate the availability of non-reserved inventory by early 2012.” This is of course to take on Facebook and Google. The former is supposed to surpass Yahoo! in display advertising for the first time this year.

Barnes & Noble Jumps On The Anti-Microsoft Android Licensing Bandwagon (CNet)
Barnes & Noble is asking the DOJ to investigate Microsoft’s patent-licensing tactics, accusing the company of trying to thwart competition with flimsy infringement claims. The bookseller’s Nook e-reader runs on Google’s Android mobile operating system, which has been under attack from Microsoft patent lawyers. Microsoft has convinced several device makers (HTC, Wistron and Compal) to pay it licensing fees for every device they sell that uses Android.

Samsung Talks About Windows 8 Tablets Coming In 2012 (PC World)
Microsoft hasn’t announced a Windows 8 release date yet, but Samsung’s head of sales and marketing, Uhm Kyu Ho, is already talking about its plans to launch a Windows 8 tablet in the second half of 2012. Ho also noted that the computer line would have touchscreens and wireless keyboards. The product will probably be a modified version of Samsung’s Series 7 slate, which runs Windows 7. While the Series 7 line is targeted at business users, Windows 8 may well open a whole new door for the existing line as well.

Google Gains Marginal Search As Yahoo Loses It, Microsoft Relatively Flat (Bloomberg)
Google widened its lead over Yahoo! in the U.S. search market in October, according to comScore. Microsoft also gained. Search share for Google rose to 65.6% last month from 65.3% in September while struggling Yahoo’s share slipped to 15.2% from 15.5%. Microsoft added one-tenth of a percentage point, garnering 14.8% of the U.S. market. So basically status quo.

Why Microsoft Needs To Wake Up (Seeking Alpha)
This is why you’ve held onto your Microsoft shares too long and should now consider selling:

  • Microsoft poorly underestimated the vitality of the search market
  • It was outsmarted in previously strong areas of its business such as browsers where Mozilla seemingly came out of nowhere
  • The Vista launch was less than stellar
  • The company has been heavily criticised for choosing to focus on its low-growth legacy businesses.
  • Microsoft’s mobile strategy has been a complete mystery
  • During the course of Ballmer’s leadership, it aborted various projects that could have generated creativity and produced “must-have” items – Kinect being the only exception

Neither Microsoft’s board nor its shareholders have held the company accountable enough for these failures. Ouch.

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