Microsoft (Nasdaq: MSFT)
Microsoft Corp. (Nasdaq: MSFT) posted its first quarterly loss as a public company - breaking a 26-year record.
Now the company hopes its crop of new products launching this fall will not only boost profits, but edge out the strengthening competition.
"Microsoft is a very strong enterprise player," Tony Ursillo, an analyst at Loomis Sayles & Co. told Bloomberg News following the report. "There was lots of evidence in tonight's report that they are a force to be reckoned with in the enterprise."
Microsoft announced Monday night that it would take a $6.2 billion charge this quarter to reflect the destruction of nearly all of the value of the $6.3 billion deal it made in 2007.
The write-down will more than wipe out Microsoft's profit for the June quarter, which analysts had projected to be about $5.25 billion.
The deal was supposed to help Microsoft catch up to Google Inc. (Nasdaq: GOOG) in the race to profit from online search.
However, Google's U.S. share of search remains about 67%, aided by its own $3.2 billion acquisition of DoubleClick the same year Microsoft bought aQuantive.
Microsoft has managed to increase Bing's share to about 15.4%, but most of its gains have come from search partner Yahoo! Inc. (Nasdaq: YHOO).
And Microsoft continues to bleed cash from search, losing $10.4 billion since 2007 and $2 billion in the past year alone.
Google, meanwhile, used its acquisition of DoubleClick to double its profits to $9.7 billion last year.
He wanted to know what I knew about a little computer company called Microsoft. It was the brainchild of the son of one of his partners at Bogle & Gates, William H. Gates, Sr.
"Not much," I replied.
But I did tell my dad that I loved using MS-DOS in the computer lab with my friends. I was a card-carrying member of the nerd herd back in the day, so I spent a lot of time there and knew Microsoft's fledgling PC-based software pretty well.
My grandmother Mimi, though, had a different point of view. You've heard me mention her before.
She's the one who was widowed at an early age and became a savvy global investor long before people ever thought to look at the bigger picture.
Mimi didn't care that the buzz was about the MS-DOS language or even about computers. Having grown up in the Depression, she believed that what people would do with the technology was far more valuable.
She said she had confidence that Sr.'s son, Bill Gates Jr., understood this -- which is why she invested heavily in the Microsoft IPO in 1986. Enough said.
Today, though, I think she'd voice an equally strong opinion about Microsoft (Nasdaq: MSFT) CEO Steve Ballmer. In fact, I think she'd fire him. Here's why....
8 Reasons Why Steve Ballmer Must Go
- Ballmer took over Microsoft 12 years ago when the stock was about $60. Now it struggles to maintain $30. Microsoft has $58.16 billion in cash and this is the best Steve Ballmer can do?
- Office and Windows are dying. Once the business world's de facto standard, both are being replaced by cheap, easy-to-operate software, much of which is actually free as well as compatible. This is a big problem considering that, according to the Wall Street Journal, roughly 85% of Microsoft's revenue is coming from just two products: Windows and Office.
- The company isn't innovating fast enough or aggressively enough. What's more, it's attempting to compensate for its own shortcomings with increasingly ill-conceived acquisitions. For instance, Microsoft forked over $605 million for 18% of the Barnes and Noble Nook e-reader and still has no real ability to compete with Amazon's Kindle. It also couldn't seal the deal with Yahoo. Despite a sizable head start using Yahoo's core search technology, Bing has a mere 15% of the search market today. Ballmer waited nearly four years to respond to the iPad and his "Surface" tablet was ho-hum when it could have been jaw dropping. One more: Microsoft paid $8.5 billion in cash for Skype. Apparently the fact that Skype was not profitable didn't matter. Ballmer's track record suggests to me that he buys businesses that nobody else "must have."
- Microsoft's Internet offerings remain wannabes and are highly priced at that. Take Yammer. Microsoft just paid $1.2 billion through the nose to acquire a company that was valued at $600 million last fall when it raised $85 million in a venture offering. Team Ballmer plans to integrate it into Office on the assumption that somehow the Microsoft marriage will endear the brand to customers anxious to socialize business. I think they're delusional. Most Microsoft users I know, including myself, are actively planning to move away from the legacy software we've used for years the first instant we can in favor of software we actually like to use!
The duo is pairing to create a new subsidiary, with Microsoft taking a 17.6% stake. Microsoft will invest an additional $305 million over the next five years.
The deal gives the tech giant a long-desired grip in the business of e-books and college textbooks, which are moving to electronic distribution.
Microsoft will highlight a Nook app later this year on its Windows 8-powered tablets. This will let it compete against Apple Inc.'s (Nasdaq: AAPL) iPad and Amazon.com Inc.'s (Nasdaq: AMZN) Kindle Fire.
"It's a good strategic deal," Sid Parakh, an analyst at fund firm McAdams Wright Ragen, told Reuters. "It gets Microsoft in the game for e-readers, and gives them access to a market that has been growing nicely and they've basically sat out of. It also makes Windows 8 a more compelling platform from an e-readers perspective."
Microsoft Moves To MobileMonday's deal is a new chapter for both companies, especially Microsoft.
Microsoft has been testing the waters of the e-book field but has yet to really get its feet wet. Since it launched e-book software in 2000, it has never been able to amass a significant library. In fact, this software will be shelved on Aug. 30.
"The shift to digital is putting the world's libraries and newsstands in the palm of every person's hand, and is the beginning of a journey that will impact how people read, interact with, and enjoy new forms of content," Microsoft President Andy Lees said in a statement.
Microsoft has been overhauling its approach to mobile, which has taken a back seat to Apple's iOS and Google Inc.'s (Nasdaq: GOOG) Android. This new deal may just take a bite out of Apple or have Google ogling.
The move could be a game changer for Windows 8, as well as the Nook.
Microsoft unveiled a beta version of Windows 8 at the Mobile World Congress in Barcelona last week.
With a final release expected in the fall, Microsoft needs Windows 8 to be a winner.
Microsoft's Windows, which has owned desktop computing with a market share well over 90%, has not fared as well on mobile devices like smartphones and tablets.
Instead, Apple Inc. (Nasdaq: AAPL) and Google Inc. (Nasdaq: GOOG) have dominated the "post-PC era" with such products as the iPad and the Android operating system.
The Redmond, WA, tech giant now hopes that Windows 8, optimized for the touchscreens of mobile computing but sharing a unified look and feel between its tablet and desktop versions, will reverse its fortunes in mobile computing.
"Microsoft's future path is riding on Windows 8 and its success," Gartner Inc. (NYSE: IT) analyst David Cearley told the Associated Press. "This is a chance for Microsoft to re-establish itself in a market where it's becoming increasingly irrelevant."
Microsoft is at a critical juncture.
The Windows and Office franchises that the company was built on rely on continued growth in the PC market which has slowed in recent years.
This stagnation in the PC market has hurt Windows sales. Revenue from the Windows division was down 6% in the December quarter - the fourth time in the past five quarters that revenue from Windows has declined year-over-year.
Meanwhile, Apple has become the most valuable company in the world on the strength of its iPhone and iPad businesses.
Unless Windows 8 can establish a strong presence in mobile computing, Microsoft risks getting left on the sidelines of tech - still moderately successful, but with little chance for growth and waning influence.