THE MICROSOFT INVESTOR: The Bears Are Eating Microsoft Alive

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MSFT Bearing The Criticism
Shares of MSFT are currently up 1% with the rest of the market, but they were off 2% yesterday as Goldman analyst, and Microsoft bull, Sarah Friar finally threw in the towel and downgraded the stock to Neutral. Upcoming catalysts include third quarter earnings release (TBD); upgrade cycles of Office 2010 and Windows 7; any entrance into the tablet market (even the just the operating system); the launch of Windows 7 mobile (October 11); any adoption of Azure (cloud computing); and gamer reaction to Kinect. The stock currently trades at 8x Enterprise Value / TTM Free Cash Flow, inexpensive compared to historical trading multiples.

Microsoft Lacks Vision For The Next Tech Revolution (CNBC)
There is much to be glum about when surveying the landscape of Microsoft’s product offerings: Bing has lost billions. Ditto for Windows Mobile. Xbox has only recently emerged as a profitable platform after years of losses. Perhaps even more troublesome is what might be perceived as a failure of vision. The company has no platform in rapidly growing markets (tablets, smartphones). So what are the bright spots for Microsoft these days in terms of products? Windows, where the company maintains 90% operating system usage share.

Microsoft Stuck In The Rotary Dark Ages (The Wall Street Journal)
It’s hard to avoid the feeling that Microsoft is stuck in a less mobile era. And CEO Steve Ballmer doesn’t seem to quite get it. He still harps on the fact that the PC remains “the most popular smart device on the planet.” And that smartphones “might be, what?, a little less than half of that.” That’s great Steve, the only thing wrong with that is that smartphone sales are expanding at triple the rate of the PC market. Admittedly, in dollar terms, the PC market likely will be bigger than smartphones for the foreseeable future. But Microsoft needs to be where the growth is, and that means smartphones.

Microsoft To Try And Re-Enter The Mobile Space Next Week (PC World)
Microsoft will launch its latest mobile phone operating system, Windows Phone 7, at its New York City Microsoft Technology centre on October 11. This is Microsoft’s attempt to regain ground in the mobile phone sector which has been getting crushed by competition. Not to mention iOS and Android at least sound cool, but Windows Phone 7? Doesn’t exactly roll off the tongue. In any event, Jay Yarow at Business Insider says it’s not a complete bust, it actually looks pretty good.

Microsoft’s Office Web Apps Aren’t Cutting It (MacWorld)
Is there any hope for the Office Web Apps? Sure. They provide Office-like interfaces and solid support for Office file formats (mostly). And if the company beefs up improvements at anything like the pace that Google and Zoho did, Web Apps could get more appealing very quickly. But if you thought the Office Web Apps would let you use Office without plunking down money for Office 2011, forget it. People who are serious about online office suites and users with more than rudimentary needs will be better off with the ones from Google and Zoho. That said, it would be strange and disappointing if the world’s dominant Office-suite company proved incapable of producing a competitive online suite.

Microsoft Fills Gaps By Promoting Internally (The Wall Street Journal)
Like Yahoo, Microsoft is hemorrhaging talent. The company reshuffled its executive ranks, prompted by the recent departures of two high-ranking Microsoft executives, Stephen Elop (Office) and Robbie Bach (mobile and games). Microsoft has promoted Kurt DelBene to president of the division overseeing its Office suite of application software from senior vice president of the group. And Don Mattrick and Andy Lees are to become presidents of the company’s interactive entertainment and mobile communications businesses, respectively.

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