THE MICROSOFT INVESTOR: Office 2010 Unveiled: Microsoft's "All About" The Cloud And Mobile

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MSFT up again today as investors shift focus from Europe to the tech recovery and yesterday’s Office announcement.  The shares are up modestly today after almost $1 gains yesterday.  The stock has rallied over the past year 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.

Microsoft Tries To Push Mobile And Cloud Offerings At Office 2010 Unveiling, But Largely Falls Short (Microsoft Watch)
At yesterday’s Office 2010 unveiling in NYC Microsoft urged businesses to upgrade to the newer version, citing lower costs and increased productivity.  However, a large part of the presentation was meant to highlight how Microsoft is fending off increased competition by cloud and mobile competitors like Google (and its Docs offerings).  Microsoft pushed cloud features for Office – essentially stripped-down versions of OneNote, Excel, Word and PowerPoint offered in the cloud.  In addition, mobile components were heavily on display.  “Sometime later, Microsoft demonstrated the Office hub on its upcoming Windows Phone 7 smartphone operating system, highlighting how it syncs with a user’s other devices to deliver that “seamless” experience across various platforms.”  These are steps in the right direction, but it seems inevitable that the increasing number of cloud competitors will eat away at the dominant Windows franchise to some degree.  In addition, Microsoft has to breathe life back into its mobile strategy if the three screens strategy is going to have legs (a serious uphill battle). 

Will Microsoft Dive Into The Sybase Bidding? (JP Morgan)
JP Morgan analysts John DiFucci thinks SAP’s roughly $6 Billion bid for Sybase Inc., a provider of enterprise and mobile software solutions, could bring Microsoft to the table with a potential counter-bid.  “Interestingly, we believe Microsoft could potentially benefit from acquiring Sybase’s technology as it would allow Microsoft to offer a more sophisticated database option with a presence at the coveted high end of the market and in the most attractive vertical – financials.  In addition, the mobile platform could potentially benefit Microsoft’s existing efforts.”  DiFucci points out that the high price and rich valuation could push the company away.  We agree.  

Hype And Buzz Aside, Google Docs Is Still A Distant Competitor To Office (ZDNet)
Analysts and investors are (rightfully) focused on the growing threat of cloud computing to Microsoft’s lucrative Windows franchise.  But it will take a very long time to materially eat away at the Windows stronghold.  “New Forrester data, released on May 11, claims that 81% of the enterprises it surveyed are running Office 2007 and 78% supporting SharePoint, compared to only 4% using Google Apps. Forrester also says that one third of survey respondents are already planning an upgrade to Office 2010 within the next 12 months.”  Competition from cloud computing, even thought it is in the early stages, is one of the reasons the MSFT shares are trading below historical levels.  The company will likely need to demonstrate it will be a strong player in cloud and mobile computing for investors to get excited.

Microsoft Tried To Buy Facebook (Business Insider)
Business Insider’s Nicholas Carlson profiles Fortune Editor David Kirkpatrick’s book The Facebook Effect and found that Microsoft tried to buy Mark Zuckerberg’s company back in 2007.  The move would have been interesting given the social network’s rapid growth.  However, Facebook is a promising, but not yet big business.  The company is releasing promising new products and growing revenue but it’s still unclear it will be a huge business, able to support the $15 Billion Microsoft would have had to pay for it.  Finally, Microsoft’s own Internet business is bleeding cash and is a tiny portion of the company’s overall revenue.  A better move would probably be to just sell the Internet business to a company that could turn it into the profit centre it should be. 

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