Microsoft Whistling Past The Graveyard MSFT, YHOO, GOOG
Microsoft's management has yet to come out and admit how serious problems at the company have become. In June 2001, the stock was above $36. It dropped below $23 in 2002, and the current $23.50 is as low as it has been since. Odd, in a way.
Revenue for the quarter ending March 31 was up nicely from $9.6 billion a year ago to $10.9 billion. Operating income was up to $3.89 billion from $3.33 billion. How many companies can boast about that kind of margin. And, the company has about $35 billion of cash and short-term investments.
Operating income in the Client, Server and Tools, and Information Worker segments is large and growing. Together, these older-line businesses brought in operating income of $5.6 billion in Q1. Which means the other three businesses operated by the company, MSN, Mobile and Embedded Devices, and Home and Entertainment, were a big drag.
Piracy, open source solutions, and IP and antitrust problems have all taken a piece out of Microsoft's vaunted reputation. But, the core fear about Microsoft is that software will no longer be sold the way it has been in the past. This means that companies delivering applications over IP will overtake the Microsoft model in the next few years.
In the arena of search technology, it is unlikely that Microsoft can cut into the lead that Google and Yahoo! have established. The fact that Google will be bundling some of its critical software with Dell PCs is hardly good news for Microsoft.
In a recent downgrade of Microsoft's stock, Caris & Co. made a prescient observation:
"Microsoft's forced shift from a software company to a digital services company is an admission that its traditional business model is challenged," said Analyst Tim Boyd. The company's stock price is an indication that this view is now widely held.
So, what can Microsoft do? Based on Microsoft's inability to change the minds of the doubting legions of investors, the stock has dropped 17% from its 52-week high of $28.38 and trades barely above $23.
But, the company still has two critical assets. One is its huge cash reserves and positive cash flow and the other is its market capitalization of over $238 billion. Perhaps the best course for Microsoft is based on the old adage "if you can't beat them, join them".
What does Microsoft need? A better position in search is the sine qua non of delivering services and software over IP to the PC and many other devices. And,it needs traffic.... Access to the tens of million of regular internet users.
The company that has both is Yahoo!. Yahoo!'s stock is now trading near a 52-week low and its market cap is small compared to Microsoft's at $45 billion. Yahoo!'s stock has not been above $40 for any sustained period in the last 5 years! Would shareholders take $40? It is a large premium given current valuations, but Microsoft's situation absolutely requires something that will transform the company in a moment's time.
Douglas A. McIntyre
Revenue for the quarter ending March 31 was up nicely from $9.6 billion a year ago to $10.9 billion. Operating income was up to $3.89 billion from $3.33 billion. How many companies can boast about that kind of margin. And, the company has about $35 billion of cash and short-term investments.
Operating income in the Client, Server and Tools, and Information Worker segments is large and growing. Together, these older-line businesses brought in operating income of $5.6 billion in Q1. Which means the other three businesses operated by the company, MSN, Mobile and Embedded Devices, and Home and Entertainment, were a big drag.
Piracy, open source solutions, and IP and antitrust problems have all taken a piece out of Microsoft's vaunted reputation. But, the core fear about Microsoft is that software will no longer be sold the way it has been in the past. This means that companies delivering applications over IP will overtake the Microsoft model in the next few years.
In the arena of search technology, it is unlikely that Microsoft can cut into the lead that Google and Yahoo! have established. The fact that Google will be bundling some of its critical software with Dell PCs is hardly good news for Microsoft.
In a recent downgrade of Microsoft's stock, Caris & Co. made a prescient observation:
"Microsoft's forced shift from a software company to a digital services company is an admission that its traditional business model is challenged," said Analyst Tim Boyd. The company's stock price is an indication that this view is now widely held.
So, what can Microsoft do? Based on Microsoft's inability to change the minds of the doubting legions of investors, the stock has dropped 17% from its 52-week high of $28.38 and trades barely above $23.
But, the company still has two critical assets. One is its huge cash reserves and positive cash flow and the other is its market capitalization of over $238 billion. Perhaps the best course for Microsoft is based on the old adage "if you can't beat them, join them".
What does Microsoft need? A better position in search is the sine qua non of delivering services and software over IP to the PC and many other devices. And,it needs traffic.... Access to the tens of million of regular internet users.
The company that has both is Yahoo!. Yahoo!'s stock is now trading near a 52-week low and its market cap is small compared to Microsoft's at $45 billion. Yahoo!'s stock has not been above $40 for any sustained period in the last 5 years! Would shareholders take $40? It is a large premium given current valuations, but Microsoft's situation absolutely requires something that will transform the company in a moment's time.
Douglas A. McIntyre
posted by douglas mcintyre at 11:08 AM
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