Goldman Sachs analysts have downgraded Microsoft to a "neutral," claiming the company is not living up to investor expectation.
Goldman Sachs has issued a challenge to the Redmond giant, and it's a mammoth task list:
- A materially increased dividend beyond the recent 23% increase, moving Microsoft into the top 20 dividend-paying companies in the S&P 500 in terms of dividend yield. We believe this would open the door to a larger investor base and keep the company more diligent from a spending perspective.
- A coherent consumer strategy that could involve paring back investments and/or divesting more peripheral assets such as gaming.
- Market leadership in Cloud. Microsoft has a strong portfolio of enterprise data center assets and could become a leader in Cloud deployments, but the competitive environment remains highly in flux, with Microsoft still not a clear “winner,” in our view.
On top of that, analysts fear that the PC upgrade machine that has help buoy Microsoft's profits as of late might be grinding to a halt and that Microsoft has been too slow in getting in on the smartphone and tablet markets.
This downgrade will no doubt sting Microsoft, but it can't be said that it's come as a surprise. While Microsoft managed to squeeze the dollars out of monopolies that it carved for itself with Windows and Office, other market have proved elusive. In fact, Microsoft has burned through billions of dollars trying to capture new markets from smaller, more agile competitors. Search, gaming, Kin, Zune and countless other projects have, and some still do, represented huge money bonfires.
Now analysts want Microsoft to dominate new markets such as cloud, tablet and smartphones. That's a colossal challenge. One question remains - is Microsoft up to the challenge?