Microsoft's mobile missteps a persistent investor concern

Microsoft's mobile missteps a persistent investor concern

Summary: Microsoft has compelling product cycles to ride with Windows 7 and Office 2010, but the long-term picture is worrisome given the software giant's lack mobile success, according to an analyst.

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Microsoft has compelling product cycles to ride with Windows 7 and Office 2010, but the long-term picture is worrisome given the software giant's lack of mobile success, according to an analyst.

In a research note, Barclays Capital analyst Israel Hernandez cut his price target on Microsoft to $32 from $35. Hernandez doesn't see any big earnings risk, but notes that Microsoft shares have underperformed both the Nasdaq and S&P 500. Microsoft is now less valuable than Apple based on market cap. The surface concerns are obvious: Europe, decelerating PC growth and another reorganization so the company can get its entertainment and services unit in order.

However, Hernandez says there's something deeper going on. HP's acquisition of Palm, Apple's iPad and the success of Android all ding Microsoft's platform at various levels. From netbooks to mobile to tablets, Microsoft alternatives are everywhere. Simply put, Microsoft better get Windows Phone 7 right or it will have long-term concerns ahead. What happens if Microsoft doesn't get its 30 million Windows Phone 7 users? Here's what Hernandez had to say:

We view the mobile/tablet/smartphone market as a strategic imperative for Microsoft, not so much for the immediate revenue opportunity but more so because of the potential competitive impact on the core Windows franchise over the long-term...In our view, the inroads that Apple and now Google have made with smartphones and tablets have created a scenario whereby a new generation of consumers is increasingly looking beyond Windows for their basic computing needs, especially with more and more content and applications available in the cloud and accessed through a browser, obviating any need for a Window-based machine. We are seeing this already with Apple’s steady market share gains in the PC market, a trend which we see as accelerating as iPhones and iPads becomes more pervasive, with iPads already cutting into the netbook market.  While we do not want to overstate the market share issue, we believe the threat posed by these new platforms is having a major impact on Microsoft’s valuation today.

When Hernandez talks about sentiment he's referring to Wall Street as a discounting mechanism. Microsoft may have a strong earnings cycle ahead, but investors are concerned about whether the company can be a player in hot markets.

These concerns also persist at Microsoft, which reorganized its entertainment and device division. To wit:

The big question is whether Microsoft can give the innovation cycle a run in the mobile market and entice consumers to try Windows devices.

Topics: Windows, Apple, Hardware, Laptops, Microsoft, Mobility, Operating Systems, Software, Tablets

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27 comments
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  • "according to an analyst"

    And yet other like where MS is going, so whats's the point?

    http://www.zdnet.com/blog/hardware/idc-30-million-windows-phone-7-handsets-to-be-sold-by-end-2011/8451?tag=mantle_skin;content
    John Zern
    • RE: Microsoft's mobile missteps a persistent investor concern

      @John Zern At least this story is based on an actual analyst's opinion, not Adrian the Hardware 2.0 Blogger's [i]expert[/i] opinion.

      ZDNet is really going to heII in a handbasket.
      babyboomer57
      • Well, other than Ed Bott, I think ZDNet does a very good job. Though, this

        article about the analyst opinion is one of the better ones. Mobile is a big problem for MS right now. The platform they have on the market is fading into zero market share, and the new platform is months away.
        DonnieBoy
    • Well, the prediction that MS will sell 30 million handsets is a big stretch

      and Adrian notes that in the article.
      DonnieBoy
      • RE: Microsoft's mobile missteps a persistent investor concern

        @DonnieBoy

        Its more than a big stretch. I'd go as far to say its going to be impossible for Microsoft to sell 30 million handsets in the first year.

        Google have just announced that Android is now getting 100,000 activations per day (which is more than Apple are currently getting) which equates to 36M handsets a year.

        It would be a monumental task for Microsoft to hit the ground running and consistently sell near to 100,000 units per day from the day the phone is released. The iPhone sold less than 6M units in the first year and Android phones were much less than that.

        The iPhone has sold 51M units in three years, and there is NO WAY the Windows Phone will achieve higher sales than the iPhone.

        IPhone and Android are established brands with years of marketing and word-of-mouth recommendations, and huge app stores. The Microsoft app store will start with 0 apps, as WP7 is not compatible with WP 6.5 apps so every WP app will have to be re-written.

        Microsoft would have to undercut Android to make it more appealing for handset manufacturers, but how do you undercut free? Microsoft charges handset manufacturers for their OS so WP7 phones will be 15% more expensive than comparable Android phones unless Microsoft or the Handset manufacturer subsidises the cost, which I cant see happening.
        Nickkuk
  • RE: Microsoft's mobile missteps a persistent investor concern

    If any company allows Microsoft in the door, they may as well hand them the keys and go home. No company has ever survived, let alone profited, once Microsoft is in the door.
    tburzio
  • RE: Microsoft's mobile missteps a persistent investor concern

    Ms should be Broken Up like AT%T. 3 MS companies would give better results to Public and investors. Next Years IT is Not Microsoft Free or Linux Free but Open to Both.
    Samuel C.
  • Netbooks

    Isn't it interesting how Microsoft was going to be undone by netbooks just a year ago? Today, it's a concern that the iPad is cutting into the netbook market.
    dunraven
  • RE: Microsoft's mobile missteps a persistent investor concern

    Microsoft products are mediocre at best, i.e.: iPod/Zune, Mac OS 10/Windows 7, iPhone/Windows Mobile, etc. Even with a company like Apple to copy and steal innovations and technology from, they still can't produce viable products. The blame falls on CEO Steve Ballmer. The man is I capable of developing a vision or one single innovative idea. If not for being assigned Bill Gates college roommate, the guy would be a complete unknown. I can't understand why their board of directors haven't demanded his resignation. Microsoft will continue down a downward spiral as long as this inept embarrassment of a leader remains at its helm.
    gtdworak
    • Enough with the "copy and Steal BS"

      Funny how Apple copied and stole ideas from many other pre-existing devices and yet people "believe" that Apple somehow "innovated" them.

      Wht not make a list of these "innovations" and I'll bet you that readers here can put up examples of those very things that came before Apple's products.

      The only thing Apple really innovated is the ability to market someone's else's ideas as their own.

      My question is, where does Apple go from here once there's nothing left for them to copy?
      AllKnowingAllSeeing
      • RE: Microsoft's mobile missteps a persistent investor concern

        @Pliny the Elder (should read Puny the Elder) you're pathetic, Apple innovates on so many Levels but let me agree with some of what you've said even if Apple used Part of the original Xerox os for it's own ,other Companies like MS could have done the same they saw it at around the same time the difference was that Apple had the vision to cobble something together and eventually get a decent OS happening MS instead waited till Apple got it to a very usable stage and started copying it, so what they did was let Apple do all the hard work (R&D) then reverse engineer it , you know that's the truth don't argue with me i'm right you are wrong my PUNY ELDER!
        johnpall@...
      • Apple excels at marketing

        They do very well at combining multiple existing technologies into single devices, then creating sufficient buzz to pique the public interest and create sales. Apple also has one significant advantage over everybody else: Steve Jobs' unique vision. I find myself wondering how Apple will fare after SJ leaves.<br><br>They did quite poorly the last time...
        NickNielsen
  • MS' failure to address stuff like above, is why the company's stock ...

    ... has a hard time moving upwards. MS needs to do a much better job addressing issues and managing its image through advertising and other means. As for <a href=http://www.wmexperts.com/ballmer-no-plans-wp7-tablets>MS' decision to not pursue tablets (with a mobile OS like Windows Phone 7)</a>, when Apple appears to be making a lot of money doing so, and every other competitor and its brother is about to do so, is in my opinion, a huge, huge mistake. Even I am planning to get an iPad soon, with one or a few more for my family members - and I've never bought an Apple product before. I just find it incredible that <a href=http://money.cnn.com/video/technology/2010/05/25/tm_ballmer_tablets.fortune/>Ballmer says he is sticking with Windows 7 for tablets</a>. I think Ballmer should actually sit down with an iPad and a Windows 7 tablet, then reconsider his decision. (Or better yet, have his parents use both machines, and see which one they prefer.) Remember, the iPad is not about functionality rivaling that of the PC: it is about having a superior user experience (including high mobility) that many, many people find valuable - e.g. novice users. Also, there is no indication that the iPad is cutting into Apple's Mac computer sales, so it seems unlikely that it will cut into regular PC sales. I therefore do not see the downside of pursuing tablets with a mobile OS.
    P. Douglas
    • RE: Microsoft's mobile missteps a persistent investor concern

      @P. Douglas <br><br>Microsoft is moving way too slow to truly compete today. Someone needs to let MS know that this is not 1995 anymore, especially in the consumer market. They need to be more like a Google, nimble, open. Stop trying to be Apple, it's not working. <br><br>Google realized the popularity and impact of the iPad and already said they will have an answer. Investors are happy because even though nothing has been developed or shown yet, they know Google is on guard, always ready to take on the biggest competitor. <br><br>Contrast this to Microsoft: Bill Gates already made the statement that Netbooks is the future, and consumer would rather read the web and eBooks on their netbooks than on their iPads. Ballmer still trying to push Windows 7 on tablets, despite its failings over the decades. These guys are out of touch with what consumers really want today.
      dave95.
    • There are tablets, then there are tablets.

      @P. Douglas: Media tablets and tablet PCs are very different animals for very different markets. Some tablet GIS and vector graphic adaptations of tablet functionality are pretty spectacular, and will never run on a media tablet device running a phone OS.
      Lester Young
      • Embarking on one set of tablets does not mean the other has to end

        @Lester Young,

        MS pursuing tablets based on Windows Phone 7 doesn't require MS to stop making tablet PCs based on Windows 7. Tablets based on Windows Phone 7 would essentially be a media consumption / light productivity devices like the iPad, and would be going after a different market. (Also I don't see why MS can't charge Windows 7 Start Edition price for the special Windows Phone 7 OS, and raise the first OS' price a little. MS can also automatically plug its Zune network into these devices, and make money from an app store.)

        I personally think this market is huge! There are lots and lots of people out there who are scared of computers, and will gravitate to these devices instead. Plus I believe these light weight OS tablets will be the media consumption device of choice in homes and offices. I believe lots of people will carry these things around in Offices in lieu of paper files and documents as they go to meetings and casually review and analyze data. People will never do that with Windows 7 Tablet PCs due battery life concerns, weight, and a poorer user experience. Also I believe these things will eventually overtake schools and vertical markets like medicine, engineering, and design.

        Now you may ask, what's wrong with Windows 7 tablet PCs? Where do I start? The interface is comparatively old, disjointed, complicated, and ill suited for touch. There is no app store, while the iPad which has only been out for a couple of months has one, and has many times more local applications available. Battery life is relatively poor. There is no, nor has there ever been, any serious marketing for Windows tablet PCs. There is no instant on. Etc.

        I believe it is apparent to just about everyone, that compared to the iPad, Windows Tablet PCs show virtually no design, marketing, or ecosystem support effort. It is kind of like Ballmer seeing Apple putting out Megan Fox in a beauty contest, and then him saying he's confident that MS' own Ugly Betty will win the competition. Of course no one really believes this will happen.
        P. Douglas
  • ZDNet: You need to work on the flagging, and reputation of those doing the

    flagging. Somebody flagged tburzio above, but, it is not spam or objectionable, (even though I disagree with him), or off topic. And, because it is flagged, I can not reply.
    DonnieBoy
    • Not off topic or spam? You're joking, right?

      [i]If any company allows Microsoft in the door, they may as well hand them the keys and go home. No company has ever survived, let alone profited, once Microsoft is in the door. [/i]

      Now what's the connection between that and the story? And it's obviouslly false as many have profited, so I would guess that whyever it was flagged for, it's was worthy of it.
      AllKnowingAllSeeing
      • It was on topic about MS problems. He is asserting that MS may have

        problems, but, if you let them in the door in an area, they will beat you, so, you better be careful.

        I disagree with him, but that is not reason to delete his post. Obviously, they were in the door with mobile phone OS, and they squandered it.
        DonnieBoy
  • The last concern for Microsoft was...

    ... if they'll be able to recover from from the Vista debacle. They did. With flying colors.

    Give MS some credit and let's just wait.
    silent.griffin