MSFT

[Myth465]

Prunes I think you are wrong. We will be Googling until Google screws up. I dont think search is a commodity. Mindshare is worth something, its very difficult to attack Coke, Youtube, Google, or Facebook, or even MSFT in their core businesses.

[goldfinger]

Going back to a discussion we had on this board in January, Coca-Cola means "big tobacco" to me now.

 

Their past growth benefitted from a world in which the sources of a growing epidemic of metabolic syndrome had yet to be understood.

 

Will people be willing to consume 64 ounce Cokes thirty years from now? 

 

How many board members smoke a pack a day?  Smoke even once a week?  What would have been the percentage 30 or 40 years ago?

 

Fear not investors, you have made a lot of money as the merchants of death, despite the drop-off of smokers in the USA.  Rest assured, you will continue to send a lot of Coke drinkers to an early grave and the opportunity to continue doing so well out into the future exists.  It is a "wonderful" business.

 

Finally someone speaks the truth (Coke and other unhealthy food businesses)!

[DCG]

You can use MS Office online. There will be less of a need for people to buy Microsoft's crappy operating system.  :P

 

I can't remember a time when you needed Windows operating systems to run Office.  In fact, I just ordered (yesterday) an iMac for my wife (configured with MS Office pre-loaded).

 

What else (it's not MS Office) has driven corporations to upgrade to Windows 7 desktops instead of to Mac desktops?

 

 

Point taken on your first point (I think Microsoft started making Office for macs in the mid 90's, but you're right on that.

 

One your second point, there are 3 reasons I see:

 

1. Cost of buying a large amount of Macs

2. Cost involved in switching (including training people on how to use a new operating system).

3. The software and programs they use are Windows based (this is the main reason every company I've worked for has used PC's, although cost is of course part of it as well).

 

The 3rd point is the important one. As far as software goes, as more and more software runs on the Internet (I hate using the term 'cloud' - it's the internet), there is less of a need for the Windows operating system. Regarding the 2nd point, web-based software technologies is making it easier and cheaper to switch.

 

I'm not saying there won't be any need for operating systems, just less of a need for a specific operating system. And I still think we're several/many years away from large businesses really adopting that model.

 

Regarding why companies upgraded to Windows 7, well a lot of them haven't, and the other main reason is because Vista was horrible. There are a lot of large companies still using XP, which is around 10 years old. As software becomes more and more web-based, there will be less of a need to upgrade to newer versions of Windows. The last company I worked for, which was a fortune 100 company with around 25,000 employees was still using a DOS system as their main system, and was still on XP (they just 'upgraded' to Office 2007' right before I left, but had no plans of upgrading to Windows 7. It takes large corporation a long time to change their systems infrastructure, which is why I said this change is going to take a while.

 

I'm not at all saying that Microsoft of going to go out of business soon or anything like that; just that their future is pretty cloudy, and they've shown an inability to execute well under Balmer. Worst of all, the Microsoft brand is eroding. Like it or not, a lot of people (especially young people) are embarrassed to be seen with their products (when do you ever see people showign off their new Windows phone to their friends?).

[ERICOPOLY]

I may not have read every post on this thread... so hope this isn't repeating what others have said.

 

There is a calculator estimating how much revenue Microsoft will be collecting for a given cloud application written for the Windows Azure platform.  Click the "launch the calculator" link:

 

http://www.microsoft.com/windowsazure/economics/

 

The strategy for Azure is to be the cloud operating system.  If this wasn't plainly obvious already.  So you can have a user with an iPad or Chrome tablet, using it for a business meeting, but if he is running a cloud application that was written for the Azure platform, then he is in effect running a Microsoft operating system  8)

 

I'm counting down the minutes until Azure incorporates Skype functionality somehow.

 

The Server & Tools division is where a lot of growth is going to happen (just my forecast). 

[EdWatchesBoxing]

I may not have read every post on this thread... so hope this isn't repeating what others have said.

 

There is a calculator estimating how much revenue Microsoft will be collecting for a given cloud application written for the Windows Azure platform.  Click the "launch the calculator" link:

 

http://www.microsoft.com/windowsazure/economics/

 

The strategy for Azure is to be the cloud operating system.  If this wasn't plainly obvious already.  So you can have a user with an iPad or Chrome tablet, using it for a business meeting, but if he is running a cloud application that was written for the Azure platform, then he is in effect running a Microsoft operating system  8)

 

I'm counting down the minutes until Azure incorporates Skype functionality somehow.

 

The Server & Tools division is where a lot of growth is going to happen (just my forecast).  

 

I read about SQL Azure last year. At some point a lot of those in-house SQL Server databases and .NET apps will be moving to Azure. I think it will end up shrinking a lot of the support staff in IT departments. Some will still be required to deal with sync/network issues between the in-house network and the cloud. It will probably be partially offset by additional hiring on the development/business analysis side. At my office, it's taken them a while to warm up to using the virtual servers, but they have slowly come around to using them. The cloud could be a next step.

[ERICOPOLY]

I may not have read every post on this thread... so hope this isn't repeating what others have said.

 

There is a calculator estimating how much revenue Microsoft will be collecting for a given cloud application written for the Windows Azure platform.  Click the "launch the calculator" link:

 

http://www.microsoft.com/windowsazure/economics/

 

The strategy for Azure is to be the cloud operating system.  If this wasn't plainly obvious already.  So you can have a user with an iPad or Chrome tablet, using it for a business meeting, but if he is running a cloud application that was written for the Azure platform, then he is in effect running a Microsoft operating system  8)

 

I'm counting down the minutes until Azure incorporates Skype functionality somehow.

 

The Server & Tools division is where a lot of growth is going to happen (just my forecast).  

 

I read about SQL Azure last year. At some point a lot of those in-house SQL Server databases and .NET apps will be moving to Azure. I think it will end up shrinking a lot of the support staff in IT departments. Some will still be required to deal with sync/network issues between the in-house network and the cloud. It will probably be partially offset by additional hiring on the development/business analysis side. At my office, it's taken them a while to warm up to using the virtual servers, but they have slowly come around to using them. The cloud could be a next step.

 

Something like this may be their first step:

 

http://www.microsoft.com/windowsazure/appliance/

 

[JEast]

In engineering terms, maybe we should be using the KISS method (keep it simple stupid) type of analysis versus growth rates, market share, etc.

 

Even after the recent purchase, they have $5 in cash with relatively little low cost debt.  So for a $20 dollar stock earning $2+, what is your downside?

 

 

Cheers

JEast

[bargainman]

Prunes I think you are wrong. We will be Googling until Google screws up. I dont think search is a commodity. Mindshare is worth something, its very difficult to attack Coke, Youtube, Google, or Facebook, or even MSFT in their core businesses.

 

Mindshare is certainly one thing.. but there's another.  That's servers, hardware, and algorithms.  Bing still doesn't do as good a job as Google as far as I've seen and MSFT has thrown billions into it.  Google by some estimates has more than a million servers.  I think the only companies with as many are Amazon and MSFT.  But MSFT's servers aren't as focused on search.  In order to do search well you need many many servers all over the world with cheap energy close by to power them.  It's at the stage where infrastructure matters.

[Myth465]

In engineering terms, maybe we should be using the KISS method (keep it simple stupid) type of analysis versus growth rates, market share, etc.

 

Even after the recent purchase, they have $5 in cash with relatively little low cost debt.  So for a $20 dollar stock earning $2+, what is your downside?

 

 

Cheers

JEast

 

I have been rethinking my entire approach to portfolio allocation.

 

The downside for me with all of these large tech companies except for maybe Google. Is they are all extremely competitive and all of their moats are thin and under extreme attack from companies with billions of dollars. Microsoft is attacking Sony (winning / won), Google, Cisco, Apple, ..... And all the others are attacking MSFT. I have no idea where it goes or who wins, and more importantly have no real trust in Ballmar to be ahead of the curve.

 

WDC and Seagate are under attack, but WDC has strong Management and tend to be ahead of the curve. Ballmar is playing catchup with Billions of dollars in shareholders money.

 

I dont know where it goes, who wins, and there is a big chance to make a losing bet. Its tough. I can understand the multiples for these stocks when I think about it. Cisco has a great FCF yield, but will they be able to compete with software solutions and cheap Chinese copycats. MSFT has a great business, but it is basically in runoff. Perhaps a 10 - 15 year runoff, but runoff nonetheless. Not a problem but that cash is going into the Skypes of the world. Hoping that something sticks.

 

Tough way to make a buck, I think one must take a basket approach to really make it work. The only one I have confidence in over the short to medium term is Google.......

[goldfinger]

I think it will end up shrinking a lot of the support staff in IT departments.

That's exactly one of the directions and it is already happening especially in new smaller companies at the moment but will propagate to all types of businesses. Businesses want more for less cost:

- Free/open source doesn't obligatorily bring that because you still need a comprehensive set of applications integrated into solutions that companies can use to produce efficiently. So developers/consultants still need to be used to get there when using free/open source.

- IT is a big spender and source of headaches and incremental needs in resources.

- As for devices, companies will buy the machines that will give them maximum options and power for the smallest price and for now I am not sure that they can get out of the PC thing. Apple has been wisely targeting the end user market.

[JEast]

Myth - did you not answer the question?

 

If it is in runoff, run the numbers and what is your downside?

 

If you have shareholder friendly management with share buybacks earning $2 for the next 10 years, what is the downside exactly?

 

If something does stick, seems like more upside than downside from this board member.

 

 

Cheers

JEast

[ERICOPOLY]

Tough way to make a buck, I think one must take a basket approach to really make it work. The only one I have confidence in over the short to medium term is Google.......

 

My wife has a hotmail account linked to her YouTube account.

 

Today she got an email from service@youtube.com requiring her to link her YouTube account to a Google account (she doesn't yet have one).

 

"Don't be Evil"

[goldfinger]

The downside for me with all of these large tech companies except for maybe Google. Is they are all extremely competitive and all of their moats are thin and under extreme attack from companies with billions of dollars. Microsoft is attacking Sony (winning / won), Google, Cisco, Apple, ..... And all the others are attacking MSFT. I have no idea where it goes or who wins, and more importantly have no real trust in Ballmar to be ahead of the curve.

 

WDC and Seagate are under attack, but WDC has strong Management and tend to be ahead of the curve. Ballmar is playing catchup with Billions of dollars in shareholders money.

 

I dont know where it goes, who wins, and there is a big chance to make a losing bet. Its tough. I can understand the multiples for these stocks when I think about it. Cisco has a great FCF yield, but will they be able to compete with software solutions and cheap Chinese copycats. MSFT has a great business, but it is basically in runoff. Perhaps a 10 - 15 year runoff, but runoff nonetheless. Not a problem but that cash is going into the Skypes of the world. Hoping that something sticks.

 

- MSFT being in run-off is your view of the business. How long has IBM been in run-off now? What about HP? The negative view of Microsoft is so engrained in people's minds and has been for 2 decades now. I do not deny changes, competitive pressures and threats but Microsoft has bright spots and is much better managed than most believe. Skype acquisition is not to be understood linearly: it will be integrated and used across many layers of technologies and products (cloud, smart phones, services, APIs/.NET, office, OS, Facebook, search etc...). Microsoft hasn't made acquisitions like this all the time. I would be patient on this one. I would also be patient on the online division: this one may surprise over the next decade. Bing is really decent for example. I have been using Google for a long time (it is my default page on all my new machines and browsers) but wouldn't mind switching to Bing in an instant if brought there intelligently. As for web OS and open source PCs etc...: Let's put it that way: hopefully for our own sake it will not work!

- For some reason I am much more worried about Cisco: their main business is now commoditized. They are surrounded everywhere on their own battlefields.

- At forward P/Es of 7, 8 or 9 for some of those companies, it may be easier than you say to make money.

[ERICOPOLY]

I would also be patient on the online division: this one may surprise over the next decade.

 

Two obvious points that a moron can understand:

 

1)  Huge expenses from their buildout of datacenters to support their online services, yet not enough revenue from those services to make any money

2)  Microsoft will take your money on a subscription basis to host your cloud apps in it's datacenters.

 

Given that the data centers are underutilized and ongoing expenses are already being incurred quarterly, one can imagine the margin on the incremental hosting of the cloud apps, can one not?

 

Sheesh... so they built a whole lot of datacenters that aren't paying for themselves.  It will come, it will come...

[Myth465]

Myth - did you not answer the question? If it is in runoff, run the numbers and what is your downside?

 

If you have shareholder friendly management with share buybacks earning $2 for the next 10 years, what is the downside exactly?

If something does stick, seems like more upside than downside from this board member.

Cheers

JEast

 

My issue is I cant account for what Ballmar will do with the majority of that cash. If it were truly in runoff with 50% going to building a new moat online / other moats and 50% going back to shareholders I would be fine. It would be a buy. But I cant say thats the case, they could have a yahoo or Skype purchase every 2 years or so. Jerry Yang saved them a few years ago but not everyone will turn down free money.

 

- MSFT being in run-off is your view of the business. How long has IBM been in run-off now? What about HP? The negative view of Microsoft is so engrained in people's minds and has been for 2 decades now. I do not deny changes, competitive pressures and threats but Microsoft has bright spots and is much better managed than most believe. Skype acquisition is not to be understood linearly: it will be integrated and used across many layers of technologies and products (cloud, smart phones, services, APIs/.NET, office, OS, Facebook, search etc...). Microsoft hasn't made acquisitions like this all the time. I would be patient on this one. I would also be patient on the online division: this one may surprise over the next decade. Bing is really decent for example. I have been using Google for a long time (it is my default page on all my new machines and browsers) but wouldn't mind switching to Bing in an instant if brought there intelligently. As for web OS and open source PCs etc...: Let's put it that way: hopefully for our own sake it will not work!

- For some reason I am much more worried about Cisco: their main business is now commoditized. They are surrounded everywhere on their own battlefields.

- At forward P/Es of 7, 8 or 9 for some of those companies, it may be easier than you say to make money.

 

INMO the profitable section of MSFT (OS, Office) is in runoff. I dont think we will be computing in the same way (desktop / office) in 10 to 15 years. They are moving into other businesses, but I am not the best guy to evaluate that. What I see is a business with an unbreakable moat, which is in runoff. Management is trying to bridge to the next deal. Similar to IBM, HP, DELL, and other tech companies. MSFT has a huge advantage in their move and may be successful, but thats not what I am paying for. I am not in the business of picking winners. I can say without a shadow of a doubt things will be different, but dont know in what way.

 

It will likely be cloud / net based with smaller support groups and easier upgrades. Data will be pulled down to devices which may run a number of OS's. That doesnt matter, MSFT throws off a hell of a lot of cash, and that 10 - 15 year runnoff is enough for us to do well, but I have my doubts about the capital allocation ability. CISCO is perhaps a better example. What I am getting is perhaps these companies deserve the multiples they trade at given the risks.

 

HPQ, DELL, and Google seem a bit better....

 

[Myth465]

If we keep going we may overtake the LVLT thread  ;D

[txlaw]

Tough way to make a buck, I think one must take a basket approach to really make it work. The only one I have confidence in over the short to medium term is Google.......

 

My wife has a hotmail account linked to her YouTube account.

 

Today she got an email from service@youtube.com requiring her to link her YouTube account to a Google account (she doesn't yet have one).

 

"Don't be Evil"

 

How is requiring Youtube account members to shift over to a Google account evil?

 

If you're going to criticize GOOG for being evil, you should go after them on the privacy front.

 

 

[goldfinger]

HPQ, DELL, and Google seem a bit better....

 

HPQ and DELL at this price I agree.

 

GOOG: it is cheap and has a lot going for it, but I think most under-estimate the competitive pressures they may be facing in the next decade... They have been spending tons and tons of money in non-directly accretive projects but since they are not MSFT but GOOG nobody asks questions...

[ERICOPOLY]

But I cant say thats the case, they could have a yahoo or Skype purchase every 2 years or so. Jerry Yang saved them a few years ago but not everyone will turn down free money.

 

They might have purchased Washington Mutual if Mohnish had his way (he suggested Bill Nygren manage their cash).

[goldfinger]

They might have purchased Washington Mutual if Mohnish had his way (he suggested Bill Nygren manage their cash).

That's mean and very very funny!  :D

[txlaw]

HPQ, DELL, and Google seem a bit better....

 

HPQ and DELL at this price I agree.

 

GOOG: it is cheap and has a lot going for it, but I think most under-estimate the competitive pressures they may be facing in the next decade... They have been spending tons and tons of money in non-directly accretive projects but since they are not MSFT but GOOG nobody asks questions...

 

That money is being well spent, IMO, and we just saw a sell off in GOOG directly related to the increased spending.  

 

GOOG is one of the most misunderstood companies out there.  "GOOG is a one-trick pony."  "GOOG is really an advertising company."  "GOOG loves to burn cash."  "GOOG doesn't care about shareholders."

 

Nobody asks questions about GOOG?  Yeah, right.

[ERICOPOLY]

Tough way to make a buck, I think one must take a basket approach to really make it work. The only one I have confidence in over the short to medium term is Google.......

 

My wife has a hotmail account linked to her YouTube account.

 

Today she got an email from service@youtube.com requiring her to link her YouTube account to a Google account (she doesn't yet have one).

 

"Don't be Evil"

 

How is requiring Youtube account members to shift over to a Google account evil?

 

If you're going to criticize GOOG for being evil, you should go after them on the privacy front.

 

 

 

I guess it's a value call.

 

 

[goldfinger]

INMO the profitable section of MSFT (OS, Office) is in runoff. I dont think we will be computing in the same way (desktop / office) in 10 to 15 years.

You know software technology patterns recurrently come back: we are getting back to a renewed client/server paradigm and also multi-device paradigm. Last time it didn't destroy SAP and other ERP systems. But I do understand your concern and some of it is justified.

[EdWatchesBoxing]

 

Something like this may be their first step:

 

http://www.microsoft.com/windowsazure/appliance/

 

 

Yes, that's that type of thing that I was thinking about.

 

This Software as a Service model is one reason why independent software vendor models can become so successful. Find something that adds value, you make your product subscription based. With MS, they will just be converting all the businesses that have purchased licenses over to a subscription. I am guessing that they will also be doing the same thing with office. I don't know how much they make off their Office web services integration with SharePoint, but I can easily see this as an add-on with Azure that will bring in additional subscription revenue.

 

 

That's exactly one of the directions and it is already happening especially in new smaller companies at the moment but will propagate to all types of businesses. Businesses want more for less cost:

- Free/open source doesn't obligatorily bring that because you still need a comprehensive set of applications integrated into solutions that companies can use to produce efficiently. So developers/consultants still need to be used to get there when using free/open source.

- IT is a big spender and source of headaches and incremental needs in resources.

- As for devices, companies will buy the machines that will give them maximum options and power for the smallest price and for now I am not sure that they can get out of the PC thing. Apple has been wisely targeting the end user market.

 

New companies probably outsource from the get go and bring in business/tech people that are scrappy to get things done. I'm amazed with the free tools offered for DB development. The stuff that comes by default with VS 2010 express are pretty cool and this is the free edition (Java developers have some cool tools too). The simple stuff that wasted a lot of coding time in the past doesn't get written anymore. Your time is freed to solve business problems as opposed to being just a code monkey. The valuable developers are the ones that realize that their job rely on business knowledge. MS is set up to take on a big chunk of the support risk from their clients. I am pretty sure that MS will thrive due to Azure. Almost all of their clients who use their servers and tools have no choice.

[goldfinger]

The simple stuff that wasted a lot of coding time in the past doesn't get written anymore. Your time is freed to solve business problems as opposed to being just a code monkey. The valuable developers are the ones that realize that their job rely on business knowledge.

Totally! All I am saying is the cost of deploying integrated solutions with windows software/server and systems is very low in most cases now. We are not talking about the same layers.