Stock pricds tend to be foward looking
and the market does not like what it sees (or is not seeing)
MS needs to raise revenue (hard to do with their product line) or cut costs.
The morning after Microsoft published its second quarter figures, its share price tumbled 10 per cent as markets opened in New York – wiping $30bn off its value. Never mind the 3D goggles announced a few days before: a brace of Wall St analysts have cut their estimates and ratings for the software giant. The Street has talked …
No, they need to reinvest in research, promotion and support. The endless short-termism of the market is a blight upon our civilization. They always want instant returns even at the cost of long-term investment. The reason is obvious - they can then take the profit and walk away and repeat with another company.
But to be long-term viable a company cannot pursue an endless strategy of raising net profit at whatever the cost. Though that's what investors like.
Microsoft already invests a hell of a lot in R&D. The problem isn't lack of spending, it is that they develop the wrong products, or poor products, or both. Since Windows/Office sales are showing they've peaked, investors are rightly worried that profit from the new stuff is not going to be able to make up for the declining profit from the old stuff.
Apple spent a fraction of Microsoft's R&D budget in the years they were developing the iPhone and iPad. Spending bucketloads of cash on R&D is no better than spending nothing on it if you the same outcome either way.
Given Microsoft has lost billions in all non Windows/Office endeavors when you combine them all over the past two decades, they would have been better off if they'd done nothing (of course investors would have punished them far more for not even trying)
@DougS I get we both get to mark this day in our diary: I'm entirely in agreement with you. Microsoft has a long history of pissing R&D money up the wall chasing rainbows. Apple has had a much more effective product and, therefore, research strategy (as for that matter has Google), though I'd argue it's started to flounder recently.
Microsoft has been making a phone OS for over ten years and is now losing market share; Windows 8 is the kind of stain that even Jobs at his best would have difficulty spinning (Scott Forstall's maps was nothing in comparison); Office 365 numbers are touted like a big red ink start-up in a funding round; there is now Windows on ARM strategy for the data centre. The list goes on.
The saving grace for the board at Microsoft is that margins are still fantastic and the shareholder structure favours them.
Too bad moron. Short term profitability is for idiots or Icahns (Same thing). As said elswhere we need to throw out that type of thinking when dealing with a tech company. Laying off the brain trust is the same stupidity that HP, Kodak and Xerox did. Look where they are now! Mostly useless bystanders being abused by militant stockholders for their brands, shadows of their former selves.
Xerox is a rather poor example of your point. It's R&D was legendary but it never, you know, turned it into profits.
Kodak... well to an extent they saw it coming. I interviewed with them for a digital imaging division. In 1991. But the reality is that they were a horse carriage company selling into a nascent car market. Huge sunk costs, habits, markets, ways of thinking. Nokia-like.
No doubt that MS needs to reinvent itself. But it's R&D while massive has rarely you know... invented anything that consumers, businesses or even computer science have found worthwhile. MS is an execution company, not a trendsetter.
Win 8 was a failure to listen to customers. Less money, more humility and I daresay a firmer view on the bottom line might have kept them from pretty that massive long term gamble that they could parlay their desktop ubiquity into a top spot on phones.
Having said all that I find it odd that the market is basically reacting, very tardily, to past news - how much they've dropped the ball. Rather than to what they are doing now with Win 10 upgrade & Office on non-Win platforms.
Not rocket science those 2, and Azure. They need execution. Not a R&D or UI radical long term plans.
>No, all they need to do is produce a product that people would actually want to pay for.
No, all they need to do is produce a product that people would actually want to pay for again.
That's pretty hard to do in a maturing market where the product doesn't wear out.
For all the fun it is to rag on MS, making something better would be a major re-write, leading to instability, insecurity and incompatibility. Personally, I'd like to see it done, but it would probably need to be a skunkworks project, which I don't think is the MS way.
MS is looking to the future, it is looking at long term stability and growth.
Many analysts and share holders however are blinkered by the quarterly results. They don't give a f' about whether the company is going to be there in 12 months or 12 years, they want to know how much the company is making now.
The rapacious nature of the stock markets is not really conjucive to being a good company with a future. There is no room for making long term relatoinships with partners and customers, there is no room for securing income streams for the foreseeable future, there is only the here-and-now and if maximizing income now means that it will devastate the company and condem it to bankruptcy in the future, well, hey, that's okay, because I'll have sold my shares to some other mug by then!
I'm all right Jack!
So they're chasing a bandwagon that's well and truly set off (Mobile+Cloud) at the expense of their main source of income (Desktop).
People can see they're going to struggle because they only perform well when they're on top and have a monopoly. Anything else is a joke in terms of ROI.
"That, too, is an act of desperation – making shareholders hostages to the future based on the projections of the present."
Erm... you have to make your mind about it. Either the stock market values and anticipates the future evolution of a business or values the performance of the business today.
In the first case, this is not making anyone hostage but merely advising that there are good times to come. So no reason for the stock to fall.
In the second case, MS has met its forecasts, so no reason for the stock to fall.
What you can't do is use the same tool for both things, because future profits NECESSARILY means taking risks today.
So make your mind or just say that the stock market is a casino made up by a bunch of irrational crazy greedy individuals. Which is more likely the case.
I own a bunch of Microsoft stock which has done very well for me. What did I do this morning during the sell off? I bought more at an 9% discount. Microsoft isn't going away, Satya Nadella is still brilliant and their massive R&D over the years will pay off because they have both a trove of IP to draw from but also a lot of brilliant workers who are inspired by the company's new direction.
No you don't. You've got to be of two minds about it all the time. You have to value the future and decide whether the risks the company is taking are worth the gains based on the probability of getting them PLUS you have to value the business on its current performance. Primarily because even if the risks are worth the probably gains, if you don't have a currently sustainable business model, you can't get to the future no matter how good/right it might be if you could get there. And that's where MS's business strategy is flailing. Windows 8 is a disaster on the order of Bob, except it's their cash cow not some app that sits on the cash cow. And instead of recognizing that and adapting they doubled down on it.
"I have to wonder what would happen if MicroSoft just bowed down, adopted Linux as the OS, and focused on Office for it's profit margin?? Would they gain??"
Well they would then be installing OS security patches a lot more than once a month, that's for sure....
"I have to wonder what would happen if MicroSoft just bowed down, adopted Linux as the OS, and focused on Office for it's profit margin?? Would they gain??"
Well, lets take a similar case. Apple adopted that strategy with BSD for its iDevices and dropped having its own proprietary MacOS. It is now at record profitability partly due to having outsourced the lower (and expensive to maintain) levels of the operating system to the greater open source community (and it does contribute some back to). The bowels of the OS don't generate profitability/value for stockholders, and really doesn't differentiate you like the API's and UI on top of the OS do, so why maintain that crap yourself? Given the current CEO Nadella who is very cloud and post PC era focused, I think MS will follow Apple and convert to BSD underneath to lower their overall development costs.
(and no, I'm not an Apple fan, but credit where credit is due, buying NeXT from Jobs and basing the "NeXTgen" Mac OSX on it was a stroke of genius)
"Wall Street runs on Linux actually."
erm, no, from someone who has recently worked in several. Windows systems there vastly outnumber Linux ones. They might have a plenty of Linux boxes in niche uses like High Frequency Trading systems, but Windows is the overwhelming desktop of choice - and many enterprise and backoffice server type systems also run on Windows Server in the typical Wallstreet firm...
I have been responsible for millions of dollars in Revenue for Microsoft via purchase, recommendations, leading by example and contributing to their ecosystem. I have been a Microsoft customer since 1984. In the first decade they were not a bad partner, offered value for money and made the user experience tolerable or sometimes even good. It was clear by the 1990s that Microsoft was a terrible partner for larger businesses, but it still seemed OK for the little guy (developers like me, anyway). In the second decade they began to make licensing a nightmare, stopped making products better (making some worse) and became a significantly less valuable partner. I started the 1990s as a relatively enthusiastic supporter and recommended them. I ended the 1990s grudgingly recommending them, but cautioning people that the path forward was not looking too good. In the third decade they became a very bad partner. The disconnect between themselves and their partners became intolerable. In this fourth decade just started I finally made up my mind that Microsoft was simply not viable for me as provider or partner. They did not have much of a 'soul' to begin with, but they have lost even that.
The last PC purchased by my household was a Macbook Air and so far my household has purchased nine iPhones and zero Windows phones. These were not votes *for* Apple. I don't like Apple. They charge ridiculous premiums for things and are near psychotic about keeping people in walled gardens. These were votes against Microsoft and Google, both of which have broken faith so badly that they make Apple look good.
Bottom line: your experience that Microsoft was not good to deal with seems to be repeated on all sides. I honestly think that Microsoft's contempt for its customers and partners and its single minded concentration on financial advantage for themselves regardless of the impact on customers is what will be their undoing.
It takes a long time to get a customer. Keeping them is less work. Once they are lost, though, getting them back is very difficult and expensive.
At this point, only the most radical reversal of direction would return me to the fold and as of now they appear to be putting on the afterburners to continue forward on the course that made me part company.
Note when I say radical I mean a breakup of the company among other things.
My trajectory is similar to yours until the end of the 90's, but at about 2002 I started to play with Linux at home. Now my dependency on Windows at home is close to zero: no WinPhone, no XBox and only for kid's gaming.
But I still have to suffer Microsoft at work, and it is exactly like you describe: expensive, disregard for customer requirements, nightmarish licensing and terrible support.
Kudos to you, Linux takes some time, but once you reach the top of the learning curve there is no going back. And you feel in control of your IT life.
The FOSS world keeps getting better and better all the time.
Windows is now that large piece of annoyance that lives on a VM for those rare moments when its needed.
I run a number of Mac and Linux machines at home. But I need to re-install Win 7 on a relative's laptop after a HDD crash. MS was no help at all -- in fact told me that a new hard drive would invalidate Windows authentication on the machine, which is not true. Got it done, no thanks to MS.
I made the switch sooner, as a migration path from DOS when it was clear that win95 and NT would break everything without fixing the real problems. Linux and BSD have their share of problems but license BS isn't one of them.
The last few years have been great. You can make a good living without giving a damn about Microsoft. I've been telling my few Windows based clients they need to dump their old apps and get off that platform. Office licensing is such a hassle they're switching to Open/LibreOffice etc and suggesting others do the same when they can't open a doc. Such sweet revenge.
I wonder how does your experience plot against MS needing others, such as Novell for networking.
I'm afraid most companies tend to behave like this in similar circumstances. Given Bill came from a legal family, I can imagine that winning was everything in his background ethos.
I just find Windows too hard and there is little advantage beyond Office file format compatibility. Unless I'm collaborating on a document, I don't worry about that anyway. I have a Windows VM on an SSD NFS share so as long as the laptop is on the network, I can execute the VM locally on any host or RDP to it, but I haven't fired it up in months.
I rarely reboot into Windows to bother playing games any more. I have a a reasonable number on Linux which keep me happy, despite a much larger library on Windows.
For all the ease of use MS has been trumpeting, yast seems easier. I don't actually feel the need to have a single look & feel across all devices. Its a different form-factor and I can handle that as long as there is an easy-to-find settings icon. I don't hold out much hope that the "unified app" thing is going to help them. It may even backfire as it encourages devs not to consider differences between form-factors.
Realistically, though, I like linux because it helps me do what I want to do. Free is a cash bonus and I believe open source helps keep application functionality honest. People involved in open source are trying to solve problems and provide features to do this. Companies behind closed source software try to prevent me from doing things, unless I'm paying them and even then, they tend to limit the functionality of their own products to segment the market and extract as much cash as possible. In the "olden days" I'd have no problem with that - you put your product out there and compete. These days, its all about killing the competition and manipulating customers' environments, not being the best and letting customers decide. That offends me.
"...after a surrealistically bad session with Microsoft "help" last night, I kind of wish MS the worst."
Uh huh,they gave you a call to tell you you had a virus, and let me guess you let them take control of your pc after you handed over your credit card info, so they could remove the virus by installing their software?
What part of "Personal" Computers are the marketing wizards having a hard time with ? Gone are the days when purchasing agents risked being trampled to death by IBM Salesmen (They traveled in herds), but also gone are the days when the brick and morter store salesman knew what needed batteries - technically not an up-sale to a captive audience.
Now the captive audience is supposed to know when to send money, not a shock, just a little jolt to remind then who owns the treadmill.
There comes a point where these Wall St. types must be considered to be bona fide clowns. And the rest of us are hanging on to their every word.
Is it reasonable to think that because Office365 is up by the admittedly statistically farcical "triple digits" that regular Office should do the same? Are we so naïve to believe their expectations of earnings continuing "To Infinity and Beyond!"? Are we simply playing the game of getting out of the market at the top and letting the sucker, I mean investor behind us eat it?
Yes. Wall Street has been run as a Ponzi scheme for decades now, with the wealthy players conning the average citizen into believing "guaranteed returns" or, more believably, the idea of 'guaranteed returns' through the fantasy of 'emerging growth markets' and 'growing rates of return'.
The players , on the other hand, cash out, using schemes that range from short-selling to "IPO market valuations", quickly and at the top of the curve while letting the citizens rot in the tail of market delays and "investment strategies" behind them.
The players have real-time Bloomberg terminals, three-at-a-time- in front of them and playing the game is their life; the citizens have internet latencies and not enough time in the day to babysit an e-trade app or, even worse, a stockbroker who has placed their account low down on the totem pole as said stockbroker chases their yearly bonus in servicing the noted high volume / high value player's trades instead.
The deck has always been stacked against them but, thanks to a massing marketing campaign of ads and talk show talking-heads, "investment" TV shows and "expert" paid-for advice, they believe that they, too, can play the game of the Big Boys.
Can we have a little less of the nonsense "....wiping $30bn off its VALUE", please? What has had that sum of money wiped of it is merely its (share)PRICE. Microsoft's value is its ability to produce nearly working software and (to a lesser extent) hardware, and this will be only very slightly different after that announcement (due to random variation).
Technically its all just paper and a meaningless figure. But there are some real world impacts because it does end up affecting things such as credit ratings and employee retention however. Both will make it more expensive to do business. (having been rank and file in a major tech company, I can tell you - employees with too many vested/unvested stock options being underwater with no hope of going back above water are much more likely to walk.)
With everyone seemingly concentrating on low power computing and arm, pc processors seem to have stalled out in compute ability. I run an i7-930 which has no problems with any business or recreational software I have run, so why buy a new desktop? ( even leaving aside the whole cloudy thing)
Microsoft system requirements for new versions more or less drove new desktop purchases. Now, with "apps" instead of programs, no real headline capabilities in their OS or even hardware requirements since Vista, why replace the OS.
The whole game seems to have changed from providing new and exciting products that people wanted to buy to extracting maximum value from your customers through advertizing, personal data and metrics etc.
Microsoft acknowledges that there was a sales upswing as XP machines were upgraded so on their current path seem to be committing slow suicide and are intent on taking as many companies with them as possible.
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