"Major" Microsoft Announcement Monday

[Kiltacular]

I watched the presentation -- thanks for posting.

 

Obviously, they need a huge amount of work on their presentation skills but this device looks extremely interesting.

 

In another thread, people were talking about Buffett and how he thinks about a business, etc.

 

I think that applies here, in the MSFT, situation. 

 

MSFT was hobbled by the anti-trust stuff for a very long time.  Can you imagine if they tried to come out with their own hardware of this type (basically, a PC) during those days?

 

As Apple and Google have grown so large, it has opened the door for MSFT to design their own hardware without listening to the howls of the hardware makers.  Those guys will have no traction against MSFT in this competitive environment.  There's no way that was the case, say 7 to 10 years ago.

 

The hardware guys -- if they want to keep building hardware (and maybe they don't) will either have to work with MSFT or expect that MSFT will continue to design their own devices. 

 

While I'm not too impressed with Windows 8 simply based on carefully watching the full presentation of the Surface -- there were at least 4 times that the software looked cumbersome -- I still think the main issue to take away from this is that MSFT will design their own hardware experience (since it has become a necessity) and, most importantly, the rest of the PC hardware makers will not be able to complain about it.

 

Thoughts on this idea? 

[cwericb]

As one who buys desktops and laptops for our company here is my theory on their relative value.

 

Laptops are great for offices. They take up less space and have less connecting cables and if someone comes in to talk to you, you can shut the lid and not have to look around a screen. They also eliminate the need for a power backup and of course, they have portability when necessary. This is particularly convenient if a laptop gets a virus or needs to make a trip to the computer doctor - much easier than disconnecting a desktop and lugging it off to be fixed.

 

Desktops on the other hand are much more practical in locations like sales desks or other high traffic areas where a laptop could be stolen or dropped. The other advantage of the desktop is that when someone spills their pop or coffee, two minutes and $15 replaces the keyboard, try that with a laptop.

 

Tablets are nice and portable but they way too portable for office use, ie, they would tend to walk or get damaged - and who wants to try and type a letter on one? But for someone on the road, tablets, netbooks & laptops are great and each has their niche.

[Parsad]

Kiltacular, I agree with you.  I was thoroughly impressed by the hardware and less so by the software.  I think the whole tile thing is just more complicated and they are going with it just to be different, rather than actually useful and efficient.  But software can always be updated and improved upon, whereas if they had gotten the hardware wrong, no one would have wanted to buy one at all. 

 

They aren't going to displace Apple, and probably not Android either, but it may add a few more years to their moat and that's all they are trying to do...keep the cashflows going until you hit it out of the park with something else.  Who ever thought Microsoft was going to dominate the video game console market when Xbox came out? 

 

Personally for my work and daily use, an ipad or the ARM Surface wouldn't work for me, but the Intel Surface might work.  So I'm looking forward to testing one out later this year and possibly buying one next year after the bugs are worked out.  Cheers! 

[Eric50]

Interesting article on the long term decline of MSFT:

 

http://www.forbes.com/sites/frederickallen/2012/06/19/thats-all-folks-why-the-writing-is-on-the-wall-at-microsoft/

 

And, for those interested, a detailed review of Windows 8. It is going to be a huge shift that could impact productivity for corporate users and lead to a market opportunity for competitors.

 

http://mobileopportunity.blogspot.com/2012/05/fear-and-loathing-and-windows-8.html

 

[txlaw]

While I'm not too impressed with Windows 8 simply based on carefully watching the full presentation of the Surface -- there were at least 4 times that the software looked cumbersome -- I still think the main issue to take away from this is that MSFT will design their own hardware experience (since it has become a necessity) and, most importantly, the rest of the PC hardware makers will not be able to complain about it.

 

Thoughts on this idea?

 

I think you may be right on the tablet form factor, which could eventually become a widely used device at offices (through docking stations) by people who are not power users.  Not sure about hardware for laptops/desktops.  Also not sure about whether MSFT will design mobile phone hardware, although that's certainly a possibility. 

 

It will be interesting to see how MSFT works with the major distributors going forward.  HPQ and DELL, for example, have been major partners for MSFT in terms of distributing the Windows OS into business and into homes.  This action may free those guys up to start mixing and matching OS's when providing solutions to their business users. 

 

For example, if you're a DELL, you may tell a customer who needs to place a large order of productivity devices for its employees that the customer should go with a mix of Windows 8 PCs and iPads, or thin clients and a private cloud solution.  It's gonna be real interesting how this strategy shift affects the market share of MSFT versus AAPL versus GOOG in business.

[bargainman]

Interesting article on the long term decline of MSFT:

 

http://www.forbes.com/sites/frederickallen/2012/06/19/thats-all-folks-why-the-writing-is-on-the-wall-at-microsoft/

 

I find that article somewhat ironic, blaming the downfall of MSFT on Ballmer being a 'control expert'.  There's this other guy what was his name at that other company who had a bit of a reputation for being a control... freak was it?  I guess being a control expert leads to a downfall, and being a control freaks leads to mass admiration ;-)  clearly I'm simplifying, but I do find it amusing...

[Guest valueInv]

People looking towards powerful tablets for work with keyboards, a stylus, capable of running all their current applications are forgetting one thing - Microsoft had already released them a little while back. The verdict from the market was swift and painful for the company.

 

 

[Liberty]

http://www.bloomberg.com/news/2012-06-21/microsoft-s-surface-tablet-said-to-be-wi-fi-only-in-first-models.html

[Liberty]

http://www.microsoft.com/en-us/news/Press/2012/Jun12/06-25MSYammerPR.aspx

 

1.2 billion for Yammer..

[Rabbitisrich]

http://www.nytimes.com/2012/06/25/technology/companies/with-tablet-microsoft-takes-aim-at-hardware-missteps.html?_r=1&pagewanted=all

 

 

iPad came out more than two years ago, Microsoft executives got an eye-opening jolt about how far Apple would go to gain an edge for its products.  Microsoft learned through industry sources that Apple had bought large quantities of high-quality aluminum from a mine in Australia to create the distinctive cases for the iPad, according to a former Microsoft employee involved in the discussions, who did not wish to be named talking about internal matters.       

The executives were stunned by how deeply Apple was willing to reach into the global supply chain to secure innovative materials for the iPad and, once it did, to corner the market on those supplies. Microsoft’s executives worried that Windows PC makers were not making the same kinds of bets, the former employee said.       

 

For hardware makers, the PC market has long been a struggle because Microsoft and Intel, maker of the microprocessors that power most computers, have long extracted most of the spoils from the industry, leaving slim profits for the companies that make them. Manufacturers pay hefty fees to license Windows from Microsoft, putting pressure on them to make computers as cheaply as possible using commodity parts.       

That, in turn, has limited their ability to take the kinds of risks on hardware innovation that have helped define the iPad. Furthermore, with the iPad, Apple has proved that there are significant advantages to designing hardware and software together. When separate companies, each with its own priorities, handle those chores, integrating hardware and software can be more challenging.       

 

Some who study the technology industry still believe Microsoft will get out of the business of selling its own tablet computer as soon as it can persuade other hardware companies to build compelling devices of their own. “I think once they jump-start it, they plan to make money the way they always have — from licensing software,” said Michael A. Cusumano, a management professor at M.I.T.       

 

It's not a data oriented article, but still provides good perspective.

[Valuehunter7]

Paul Krugman makes a great connection re: Microsoft's decision to build a tablet - I'm referencing his post on June 16 titled "The Hart of the Matter" (link below)

 

I follow Krugman more than MSFT or AAPL, but anyone following these stocks would be interested in Krugman's point, I would think:

 

http://krugman.blogs.nytimes.com/

[Liberty]

A few microsoft items that I saw and that might interest some here:

 

http://allthingsd.com/20120702/microsoft-writing-off-nearly-all-of-the-6-3-billion-it-paid-for-aquantive/

 

http://mashable.com/2012/07/02/microsoft-windows-phone-market-share/

 

http://windowsteamblog.com/windows/b/bloggingwindows/archive/2012/07/02/upgrade-to-windows-8-pro-for-39-99.aspx

[DCG]

Just when you think that this company is starting to regain momentum, they announce something like this to remind us that Balmer makes some horrendous decisions.

[Liberty]

I haven't read this piece yet, but it seems interesting:

 

http://www.vanityfair.com/online/daily/2012/07/microsoft-downfall-emails-steve-ballmer

[texual]

The latest Charlie Rose episode is posted on charlierose.com. It is with Bill Gates. He speaks a lot about philanthropy as well as technology. The Surface is discussed as well as Microsoft and the competition.

[AZ_Value]

I haven't read this piece yet, but it seems interesting:

 

http://www.vanityfair.com/online/daily/2012/07/microsoft-downfall-emails-steve-ballmer

 

Sometimes I really wish people would explain to me what they mean by "The Downfall of MSFT".

Is it just because they're not Apple and they don't have the Iphone? Well, nobody can make that claim! For the moment being Apple is in a league of its own.

 

But all the talk about MSFT's downfall (or a lost decade like the guy in this article) just baffles me.

Here's a quick review of what that lost decade (from 2003 to present) and the downfall looked like from where I stand:

 

Revenues went from $32.1B to $70B+ this year.

Revenues per share from $3 to $8.35

Net income went from $10.5B to $23.1B

EPS from 97 cents to $2.7

Return on equity averaged about 34%

Dividends per share increased tenfold from 8 cents in 2003 to 80 cents this year

They bought back and retired about 2.4 billion shares (roughly a quarter of the total share count) in that period and they have about $60 billion in cash right now.

 

If this is what is now called a downfall I know many companies that would love to suffer this kind of downfall.

[kevin4u2]

I haven't read this piece yet, but it seems interesting:

 

http://www.vanityfair.com/online/daily/2012/07/microsoft-downfall-emails-steve-ballmer

 

Sometimes I really wish people would explain to me what they mean by "The Downfall of MSFT".

Is it just because they're not Apple and they don't have the Iphone? Well, nobody can make that claim! For the moment being Apple is in a league of its own.

 

But all the talk about MSFT's downfall (or a lost decade like the guy in this article) just baffles me.

Here's a quick review of what that lost decade (from 2003 to present) and the downfall looked like from where I stand:

 

Revenues went from $32.1B to $70B+ this year.

Revenues per share from $3 to $8.35

Net income went from $10.5B to $23.1B

EPS from 97 cents to $2.7

Return on equity averaged about 34%

Dividends per share increased tenfold from 8 cents in 2003 to 80 cents this year

They bought back and retired about 2.4 billion shares in that period and they have about $60 billion in cash right now.

 

If this is what is now called a downfall I know many companies that would love to suffer this kind of downfall.

 

AZ your exactly right.  The problem is that they started with a nose bleed P/E ratio of over 50x back in 2000, now they trade for 9x 2012 earnings (net of cash).  They also generate over $2 billion a month is free cash. 

 

The problem is the average investor only looks at the chart and not the underlying business fundamentals.  I must say though, I am thankful for those who use a ten year chart to determine value. 

[Liberty]

 

Sometimes I really wish people would explain to me what they mean by "The Downfall of MSFT".

Is it just because they're not Apple and they don't have the Iphone? Well, nobody can make that claim! For the moment being Apple is in a league of its own.

 

I think most people look at it from a different perspective than investors (though those too probably wish the many billions earned by the company over the years could have been allocated better). MSFT used to be the most feared company in technology, and the most talked about. Everybody judged startups by whether microsoft would buy them or compete with them. Not anymore.

 

Paul Graham, one of the most influential people in the startup scene in silicon valley, explains it here: http://www.paulgraham.com/microsoft.html

 

The title might be a bit much, but it gives you an idea of what I mean. Note that this is from 2007.

 

The comments here should provide more color:

 

http://news.ycombinator.com/item?id=4194372

[Guest valueInv]

I haven't read this piece yet, but it seems interesting:

 

http://www.vanityfair.com/online/daily/2012/07/microsoft-downfall-emails-steve-ballmer

 

Sometimes I really wish people would explain to me what they mean by "The Downfall of MSFT".

Is it just because they're not Apple and they don't have the Iphone? Well, nobody can make that claim! For the moment being Apple is in a league of its own.

 

But all the talk about MSFT's downfall (or a lost decade like the guy in this article) just baffles me.

Here's a quick review of what that lost decade (from 2003 to present) and the downfall looked like from where I stand:

 

Revenues went from $32.1B to $70B+ this year.

Revenues per share from $3 to $8.35

Net income went from $10.5B to $23.1B

EPS from 97 cents to $2.7

Return on equity averaged about 34%

Dividends per share increased tenfold from 8 cents in 2003 to 80 cents this year

They bought back and retired about 2.4 billion shares in that period and they have about $60 billion in cash right now.

 

If this is what is now called a downfall I know many companies that would love to suffer this kind of downfall.

 

Wasn't is just a year ago that people were quoting similar excellent numbers from RIM and asking where the problem was?

Look at RIM now.

 

 

[writser]

A valid point, but Microsoft has shown a double digit ROA and ROE for the past 25 years. They have (and earn) a staggering amount of cash and have a huge moat with their operating system and closed-end document formats being used by almost all corporations and governments around the world. Ten years ago everybody thought Linux and the Internet would destroy Microsoft, yet they still do fine. Now it's Apple and mobile computing. Their moat might decline in a few years, but I don't think you can compare this company to RIM.

[Hielko]

I think a key difference is that MS products are more critical in the activities they support. Switching from one phone platform to another is no big deal for most users. But switching a (desktop) operating system that is used in critical business processes is something else. You can only move if you can move everything, and especially companies often have expensive custom developed software that has a very long life. They might be using less MS software, but they need to reach some threshold before switching becomes an option. So any decline is going to be way slower.

 

And I do think the number of critical applications is declining: new software is very often web based. Also at the consumer side the OS does not matter that much anymore. Plenty of people have no problems buying a macbook and switching OS, and if in some hypothetical world macbooks would become cheaper than a regular Windows laptop I would bet that MS market share would drop like a brick. The OS isn't that sticky anymore.

 

And if you look at yourself: how many things do you do that really require MS software? I used to use Outlook, now I use Gmail/Agenda. I still use Office, I often use Google Docs as well for small things. I used to use messenger to chat, now I use Facebook or GTalk. I'm still a happy Windows user, but there aren't that many reasons anymore why I can't move to something else.

[txlaw]

Interesting to hear Bill Gates say on Charlie Rose that he thinks that the release of Surface could be a seminal moment in the industry.

 

It was also interesting to hear him actually come out and say what everyone knows about Yahoo -- which is that the primary strategic reason for the proposed MSFT acquisition was to acquire the search traffic for scaling up their own search service.

[Liberty]

Good interview with Gates. I love all the work he's doing at his foundation. Truly marvellous.

[rkbabang]

The comments here should provide more color:

http://news.ycombinator.com/item?id=4194372

 

I didn't read all of these, but this one I think nailed it:

 

<i>"If I had to identify a root-cause of Microsoft's failure, it would be its voracious business practices in the 1990s. If you are in your mid-30s or older today, you grew up under this totalitarian regime -- and you hated it. And when you had the opportunity a decade or so ago, you were on the vanguard that led x86 server build-out with Linux, not Windows. To the degree that you had to care at all about Windows on the server, virtualization assured that it was in its own little box, never again to escape. And of course, you sure as hell don't trust Microsoft now: the last thing you'd ever do is buy a Windows phone or deploy on Azure -- you are of an entire generation that won't be fooled again.

 

And what if you're younger than that? If you're in your 20s or younger, you probably just don't care about Microsoft -- though you might not get why the older folks get so frothy about them. But know that your luxurious apathy is because an older generation considered Microsoft's offenses to be capital crimes -- and meted out punishment accordingly.

 

Microsoft proves that in technology you can get away with being predatory for a while -- maybe even a long while -- but not forever (at least not in a free society). And once the world moves against you, those that you so aggressively bullied will cheer your demise: you will never recover until you accept that you have failed your customers and violated their trust. Very, very few technology companies have gotten to a point of such vilification and recovered (indeed, the only example I can think of is IBM)."</i>

 

I'm in the mid-30's and older tech crowd category who would never buy a Microsoft phone or tablet, simply because it's OS is from Microsoft.  Maybe I shouldn't say never, but right now I couldn't imagine me doing so.

[bookie71]

How true, I also remember thinking the same about Xerox and IBM.

 

You could tell when Xerox was coming out with a newer and better copier, because they would come by and try to sell you your existing copier, which they would only rent to you before. It was a very high pressure sales job.

 

When I started my practice in 1970, I ordered a IBM Selectric correcting typewriter (it was the cat's meow for the time).  There was a long waiting time as they were backordered.  A friend who started a month later got one from someone who cancelled.  Those of us who were already signed up had to wait, they didn't think to give it to someone who had already ordered.

When the personal computers came out, I remember the IBM salesman coming by and he had no idea what they had or how to use it.

 

It isn't called a monopoly for nothing -