back to article Hedge fund invests $2bn in Microsoft, thinks Redmond is undervalued

Microsoft's quarterly earnings report last week did little to reassure the markets that the company is on track to regain its former stock valuation, but a $2bn buying spree by a US hedge fund prompted an uptick in its share price on Monday. At an investor conference Jeffrey Ubben, founder ValueAct Capital Management, said that …

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Pirate

In it for the kill

Hedge funds are in it for the kill. Microsoft is going bye bye soon. Once the hedge fund has done its natural working.

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Happy

Re: In it for the kill

Microsoft is not going to go away for a very long time. In fact it would be bad on many fronts for IT if they did. Besides, hedge funds are major stake holders in many, many companies and most don't specialize in dismantling them. I would not be surprised if they started calling for Ballmer's head though.

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Happy

Re: In it for the kill

You silly git. If you thought for just one second about what you are saying, maybe it would save us all the effort of having to read it. I like Linux fine and I like Windows fine as well but your constant braying on about things you don't understand is worse than listening to a cat in heat that's stuck under your bed.

If there's no MS then Linux has no mature competitor to compare itself against. You end up with one major player (Linux) with a couple of different flavors and that's no good. Linux would have no reason to continue its drive towards improvement: 'The Beast of Redmond is Dead, Proving We Were Right' would be the headlines and to believe that Linux devs aren't susceptible to hubris is simply a lack of understanding of humans.

Also, even in its heyday IBM had only a fraction of the penetration MS has now. Replacing an installed base as large as Windows in a smooth manner would take many, many years, maybe even a decade or more. The issue is much larger than training admins.

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Re: In it for the kill

I have to agree here. Microsoft going belly up would be a very ugly prospect.

Yes, I despise them as much as the next person, but I also realise that big portions of the world economy are funded/run by people who know nothing else.

No Microsoft would put a lot of people out of work, and that, would have knock-on effects globally.

Plus, the rest of us need something to poke fun at. :-)

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Re: In it for the kill

Besides, hedge funds are major stake holders in many, many companies and most don't specialize in dismantling them.

This needs a citation badly.

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Re: In it for the kill

Yes, I despise them as much as the next person, but I also realise that big portions of the world economy are funded/run by people who know nothing else.

Yes, but they don't know it well enough to matter. They could learn to click on a certain icon in another OS as quick as they can learn to click on a new icon in Win8 or whatever. As for the IT folk who really do know MS-Windows, they'll have no trouble working on another OS - especially if it's their job to do so. The dependence on MS has nothing to do with computers and how to use them.

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Coat

Re: In it for the kill

Maybe, just maybe and call me insane here, the hedge fund are in it for the money.

MS have invested big in Azure to the point where they are a serious competitor in the field. Looking ahead now all those companies (and like it or not there are a few) who haven't made the leap to cloud yet, but are running windows, will be faced with a decision of which cloud provider to choose.

Now imagine a PHB in his office faced with the choice between Azure and AWS. He sees amazon, he thinks "books" he sees Microsoft he thinks "laptop". I know we all like to think we live in a world where the people signing off on contracts are tech savvy, but those companies are not going to be the lucrative contracts they are going to be the ones that monitor tech costs like a hawk.

So to recap, of the bulk of companies that represent the future cloud market, the ones likely to make poor buying decisions will go to Microsoft.

And it's not a direct citation but:

http://www.ons.gov.uk/ons/rel/pnfc1/share-ownership---share-register-survey-report/2010/stb-share-ownership-2010.html

Shows the breakdown of share ownership in the uk, 44.6% of shares are owned by pooled private funds. (Aka hedge funds) I guess to assert that hedge funds break up companies is to assert that almost half of all the companies on FTSE are actively being broken up.

(Note the opinions above are merely opinions and are in no way based on research or prior knowledge)

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Windows

Re: In it for the kill

@stanmir No really. Of course it depends on what classifies as a hedge fund and what sort of hedge fund. Bill's bridge partner, arguably the most successful investor of the last and this century, so far, is in for the long term always. And he is heavily invested in MSFT.

I would guess these people are in when they consider the price low and hoping for a climb. It does not need many points on a share price for it to be better than having your money in cash say. As you have probably seen from the way your pension fund is perfroming.

MSFT has all the characteristics of a safe long term bet - diverse, in a mature market and prominent. There might be break up opportunities and a change of Ballmer but they have the board to get through first and their stake, afaik, isn't big enough to get them leverage

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Re: In it for the kill

What *are* you on about.

Linux will continue to improve whether Windows exists or not, simply because Linux contributors are motivated to do neat things. They really couldn't give a crap about how many widgets per microsecond Windows can crunch. They only care that this year's Linux crunches more than last years'.

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Re: This needs a citation badly.

You're thinking of corporate raiders, not hedge funds. But then again so is the author, so I suppose I shouldn't blame you. Hedge funds take positions to balance risks. In theory they make money by recognizing trends more quickly than others and moving more quickly.

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Re: In it for the kill

@Getriebe

Whilst I agree with your general thrust, if you're talking about Warren Buffett, I can assure you that Berkshire Hathaway is in no way a hedge fund.

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Re: In it for the kill

@Hieronymus Howerd

You do not have to reassure me - I know BH is not a hedge fund. Which is why I did not refer to it as such

I suspect the original article was free and easy on the defintion of what a hedge fund is and who made the small investment

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Anonymous Coward

Don't make me laugh........

"Microsoft's management team said they welcome the perspectives of shareholders, .. "

...'Those crazy shareholder what will they ever come up with next, eh?'... (i.e. We don't remotely believe this ourselves!)

"Microsoft could be the largest cloud company in the world."

Sorry, but I can't stop laughing at this. Did Balimer lend this guy his yacht or something?

I'm sure Mr Dell / IBM and many many others are laughing even harder.

"It is a dominant software company...and in the long term it will win out,"

IS or WAS? People often bitch about MS for changing strategy on its developers tools and retail products, But little regard is given to those corporate customers MS has f*cked-over- over many years. These customers have welcomingly embraced MS' competitors. MS is not innovating anymore, if it ever did! They throttled the market for decades and abused their dominance in ways that Google are reportedly now doing. The key things is Corporate customers can readily go elsewhere now. Why should they stick with MS anymore? MS past contracts were punitive and not customer kind. I would be very worried if I was MS....

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Anonymous Coward

Re: Don't make me laugh........

Hmmmm, bad reporting from the 'journalist' that wrote this piece as MS stock price went up significantly after they posted their results last week.

And have to laugh at the AC, companies are using more and more MS technology, not less. Which is why their revenue keeps on going up and up.

You need to go to Wikipedia and look up the term 'confirmation bias'

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Headmaster

Re: Don't make me laugh........

RICHTO uncloak!

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Anonymous Coward

Re: Don't make me laugh........

@'confirmation bias' AC

Disagree. When there were a lot less players in the market MS could dominate easily. But I'm making the point that MS pissed off a lot of corporate customers in their quest for ruthless profit over many decades with punishing contract terms. Those days are over! Now there's a lot more players in the market and so its a more level playing field.

Outside of Office and Enterprise Server software MS are struggling and they know it. Sure there's rising profits today, but MS can see the writing on the wall and its NOT MS! This has been written about in discussions between Gates and Balimer. They see Google's rise and fear Facebook will copy with its own profitable search-click model. Where will that leave Bing? MS will be left with aging software contracts that don't look as rosy!

Win-8 was an act of desperation by a falling giant! Moreover, MS execs frequently turn their backs on their own technology and this has shaken many developers belief in MS and whether or not to invest in MS tools. That would be unheard of just a decade ago! Are MS turning their backs on .Net? Maybe... Its not the favoured heir anymore that's for sure, and they absolutely trashed the likes of Silverlight!

I guarantee you the Metro store idea will not take off! Of course, that may be 'confirmation bias', but there's more than a nugget of truth to what I'm saying. I certainly can't see MS ever succeeding at being the largest cloud company in the world. The market simply won't let them this time...

I made good $ in MS in the 90's and 00's so I honestly can't complain. But I now have to plan for the future and I for one have lost faith in MS. I question what the .Net merry-go-round was about. Its almost as if MS wanted to be 100% Java like, but lost faith in the quest themselves. In any event I've got to figure out what's best for next, and I can't help feeling its not MS, rather its something else.

Question:

Where do you see MS 50-100 years from now? I can see Google firmly entrenched in everything... Perhaps even Facebook or something like it... But MS has burned too many bridges IMHO...

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Re: Don't make me laugh........

I was interested to learn that Rockwell Automation, who are quite big users of Microsoft-based technology, have started moving towards putting the features of their SCADA package in their hardware and serving up the system as a cross-platform environment using embedded web servers.

Story goes that they approached Microsoft to get an idea what their plans were — to Rockwell's horror, Microsoft didn't have any. Hence they've pushed forward with the intention of effectively detaching themselves from being dependent on Microsoft.

That said, there's still a lot of shops that know nothing outside of the Microsoft ecosystem. These are companies that only know how to develop software and solutions using Microsoft products. They're wholly dependent on the platform, and will be completely lost outside of their cosy home of .NET.

Manufacturers will be thust out of the status quo where they write a device driver for maybe 2 or 3 kernels, bundle it up with some bloatware in some monolothic propretary blob, into this world where you're expected to contribute your driver as source code that anyone (including competitors) can look at it, and the driver then gets bundled up by other vendors and incorporated into peoples' operating systems.

That'll be a big culture shock for them. We're seeing this now with Android -- a lot of makers of these trinkets haven't quite groked that the GPL ≠ public domain, and that the contributions are a two-way street.

I can assure you, if Microsoft goes under, we're in for one hell of a rough ride! There'll be a lot of disollusioned folk out there with no idea where to go, and it'll be the rest of us that will have to pick up the pieces.

I for one, would rather see Microsoft continue on and collaborate with us, then disappear in a puff of smoke.

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Re:"MS stock price went up significantly after they posted their results last week."

...and then promptly sank back the next day. Probably when the herd of speculators noticed profits had actually fallen substantially after accounting for deferred revenue.

I'm actually surprised they didn't drop further. Some of that deferred revenue was Win7 sales MS wanted to book as Win8, use of the $14.99 upgrade voucher magically converting the sale into a full price Win8 sale with bragging rights attached. The silence from MS tells me that didn't work, that MS couldn't even fake Win8 sales.

Investors apparently haven't noticed that yet, more accurately most haven't. But the more volatile the stock gets the more gamblers will flock to exploit it and todays news could easily signal the start of the stampede.

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Anonymous Coward

Re: Don't make me laugh........

"Story goes that they approached Microsoft to get an idea what their plans were — to Rockwell's horror, Microsoft didn't have any." ...and that in a nutshell folks sums up MS innovation....

"I can assure you, if Microsoft goes under, we're in for one hell of a rough ride! "... ......I just think MS will be become much less relevant as time goes on, especially if they keep throwing their developer tools under the bus. They will still have their enterprise niche, but in the search, phone and tablet market they will be heavily marginalized, and lose out on billions of new customers in places like India and China and South America, where people can easily pirate MS software if they really need it.

Its not that MS can't win customers from these regions its just that they are merely trying to copy the younger kids i.e. Google and Facebook, when they should have been more ambitious and tried to outthink them several steps down the road.... MS completely misinterpreted how people would perceive Bing and this has stumped their execs. They can't believe how much revenue Google are bringing in from their ad-search-click model.

Customers, both corporate or retail didn't want any more Microsoft in their diet and hated the IE experience. MS' failure here is unforgivable considering how they once dominated the desktop with IE 90%+ share and therefore had the potential to dominate the search market also. But they played into Google's hands beautifully as users sought a breath of fresh air elsewhere. Now Google has a 95% share of the search market in Europe! Oh boy, I would be kicking myself if I was an MS exec!

I have customers asking me how they can save money and drop tens of thousands of Office licenses. Once upon a time this was guaranteed income. But MS misinterpreted what the market wanted and companies just want to cut costs now. They say to me: we don't need full Office functionality on tens of thousand users' computers. We have 1% of users that are experts and all the rest are mere consumers. But sometimes we need the ordinary user to hit a macro. How can we do that on fewer machines and just distribute the results in PDF / HTML or Office alternatives?

I'm not hearing growth here, I'm hearing contraction! The same corporate users are sick to the teeth of trying to ship-out spreadsheets to BYOD and finding the results are inadequate. Its easier to ship out results as simple HTML tables and PDF's. At least those display better on a variety of devices.

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Re: Don't make me laugh........

"I can assure you, if Microsoft goes under, we're in for one hell of a rough ride! "... ......I just think MS will be become much less relevant as time goes on, especially if they keep throwing their developer tools under the bus.

Have to agree here. What I was saying is that having Microsoft suddenly go belly up would be catastrophic. More likely however, is they'll slowly wither away and fade into history like so many monstrosities before them.

It happened to Encyclopaedia Brittanica. It happened to Sony's portable music division. It's happening to Microsoft on a few fronts now.

Microsoft's peak was in 2000. IIRC Microsoft originally started in the 70's, so maybe 25-30 years they've been ramping up to this peak. There might be a second peak, but I doubt it. Likely over the next 10 years they'll start to fade.

And the furniture business in the Redmond area will start to get very lucrative.

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Microsoft become a plaything for gamblers

When investors can have this effect on share price your company is in a little trouble. When a single investor, however large manages it, that's a lot of trouble.

When that investor is from a sector more interested in share price than the actual business, with a clear way to profit from stock manipulation... you're well on the way to losing control of the company and its future.

...still, with the direction Ballmers lackeys have take Windows recently, losing control might be the best thing for everyone apart from the chair thrower ;)

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Anonymous Coward

don't worry

These are some of the contributors who supported President Romney.

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Thumb Up

Re: MS becoming a server-side company - THE FISH ROTS

Er, good post; insightful and well reasoned. Have an upvote.

[wanders off mumbling something about having to have woken up in a parallel universe today]

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Hedge funds and Long Term

I think Bill Gates continues to be a controlling stock holder, so despite Steve Ballmer at the helm Bill Gates still figures into Microsofts' future. It being that Bill is a son of a Banker I half wonder if Bill wouldn't call in a favor from some old friends from the Banking and finance world to use a Hedge Firm to buy up shares as a way of keeping Microsoft's value up while they move out of PCs and try to find a way to take Apples' market.

Of course if I'm wrong, once the hedge has driven the stock price up enough they'll sell off their shares some time in the near to mid term future.

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Re: Hedge funds and Long Term

Wouldn't that be what's known as insider trading?

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WTF?

Sheesh, those hedge-fund guys. Smartest guys in the room: "We talk up a stock we just invested in so that we can get out when it goes up"

Next they'll be claiming that Xbox Live is the biggest public cloud ever. What's that? Wall Street Journal Ad? Oh...

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is it a good thing...

Is it a good thing that Microsoft has its head in the clouds?

There are a good number of websites based in the Cloud, especially on Amazon, and this seems to be quite successful.

Are there many here who use, or know people who use, cloud services for anything other than secondary file storage and websites?

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Windows

Re: is it a good thing...

@deadlockvictim Me! Well the company I work for does. We have had people at Seattle following Azure for about 3 years now. We use its services for our commercial software and so far its excellent. We did peruse Amazon and a couple of nascent others, but at the time nothing compared and the plans which we were shown, and MSFT has stuck to pretty much, were splendid.

I can see more enterprisee class software going there. It might not be obvious, but part or all of certain classes of software will be in their distributed cloud.

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Re: is it a good thing...

Yep - we're large scale users of AWS, happily running major applications on it, It's still early days, but a lot of our big corporate customers like things hat way.

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Better their money than mine.

I expect the HF is just trying to temporarily ramp up the stock price so they can exit very quickly and make a turn.

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Anyone who thinks Microsoft is going to go bust is just crazy, they may have to eventually give up on Windows phone but they still make bucket loads of money from desktop and server Windows and office software and this isn't going to go away overnight just because people are buying iPads and iPhones.

It may force Microsoft to actually better support some other platform other than Windows such as the rumours of Office for iOS and Android and maybe IE ports to Android.

A less powerful Microsoft is a good thing though, they had too much influence over OEMs but i do feel they are still going down this route with the patent trolling against Android

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WTF?

Do you think they know something we don't?

And that Microsoft don't seem to know, either...

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2Billion That's a Nice Chunk of Change

Here's to hoping for the sake of the hedge fund MSFT does not go tits up :)

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