THE MICROSOFT INVESTOR: Wall Street Thinks HP/Palm Could Give Microsoft A Run For Its Money

The Microsoft Investor is a daily report from TBI Research. Sign up here to receive it by email.

MSFT shares flat at $31 today after a modest $0.30 decline on Tuesday.  The stock has rallied with the market and 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.

HP/Palm Combination Could Give Microsoft A Run For Its Money (Morgan Stanley)
Morgan Stanley analyst Adam Holt thinks the new HP/Palm combination could represent a formidable competitor to Microsoft “on both the mobile and mobile internet device (MID) fronts (netbooks, tablets).”  According to Holt “It appears that HP will leverage WebOS for its MIDs, although it will also continue to work with MSFT.”  This represents a potentially disruptive competitor (and a unique relationship since HP will seemingly use both Web OSes to some degree).  However, as Holt points out, this will take time.  Near-term the impact is minimal, but long-term if HP can integrate Palm into its offerings efficiently and resuscitate a brand most view as dead, this could be another formidable competitor to Microsoft. Still, HP’s success is far from guaranteed, as Web OS is the No. 4 mobile operating system in the market.  

Why HP Is Buying Palm And Why It Will Fail (Business Insider)
Dan Frommer thinks HP is trying to buy Palm to enter the smartphone industry, but also ween itself off its reliance on Windows for its hardware gadgets.  “Simply put, HP wants what Apple has: One operating system, which it completely controls, at the heart of all of its consumer electronics — phones, tablets, lightweight PCs, perhaps music players, digital cameras, televisions, etc.”  That’s going to take a lot of investment from HP and the chances of success are still slim.

FCC Looking For Some Way Around Net Neutrality Decision (Seatlle PI)
Last week a district court ruled that the FCC does not have the power to prohibit Internet Service Providers (ISPs) from restricting access to specific web sites.  Currently the FCC is seeking to find a way around the ruling by perhaps reclassifying Internet-Protocol communications as telecommunications among other ideas.  Yesterday several experts threw their hat in the ring and told a panel of FCC executives that net neutrality would thwart innovation and limit consumer choice.  Net neutrality has implications on Microsoft because sites like MSN could potentially be restricted given heavy video usage or other subjective metrics as decided by the ISPs.  Online is a small portion of Microsoft’s overall results, but the online division could lose revenue as a result of any restrictions.

Natal Is The Most Exciting Product Microsoft Will Release This Year (ZDNet)
Microsoft CEO Steve Ballmer told a conference in Colombia that “Perhaps for me the most exciting product we’ll bring to market this year, and it really fits in this context, actually comes out of our videogaming group. You might say, why would I talk to a group of CEOs about video games? Because the technology actually is very general purpose, and we’ll see come into the rest of our lives pretty soon.”  Ballmer was referring to Natal, which enables TV viewers to change channels and make other navigation choices by making gestures, not pointing and clicking with a remote control.  Pretty cool stuff, but not material in the near-term at all.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.