There's a scene in James Cameron's Titanic that serves as a good analogy to Wall Street's feelings about Microsoft these days.
In the movie, the lookouts who spotted and reported the iceberg are at their posts looking straight ahead at the iceberg when one asks, "Why aren't they turning?" Of course, the orders have been given to steer the ship away from danger - but a big ship like the Titanic doesn't just make a hard left turn. It takes time for something that big to move to another course.
As we all know, the end result is a sinking ship.
Over the weekend, Goldman Sachs analyst Sarah Friar sounded the alarms in a research note suggesting that Microsoft's lack of a plan for a tablet PC will push the company into slower revenue growth, from 12 percent in 2010 to 7 percent in 2011. (Techmeme) TechFlash picked up the research note and noted that, while the Windows team is reportedly beefing up the touch screen technology in the next version of Windows - not expected until 2012 - the company still lacks a dedicated tablet product group. The blog quotes from Friar's note:
A tablet response is still not forth-coming and our early read on Windows Phone 7 has not yet changed our view that Microsoft's share in mobile OSes will remain at only the single-digit level. For an unlocking of shareholder value, we continue to look for a more aggressive dividend, a more focused consumer strategy, and stronger Cloud-Azure traction.
Meanwhile, Goldman hardware analyst Bill Shope said the PC business is moving out of a "multi-year period of cyclical trends," according to a Tech Trader Daily post, and is heading into a multi-year period with "secular" themes dominating. In a nutshell, that upgrade/replacement cycle of corporate PCs has peaked and he estimates PCs will grow about 8 percent next year.
And the counterpoint: Microsoft: A big ship at crossroads; What else is new?.
By contrast, he's bullish on tablets, with 2011 sales estimates at 54.7 million and growing to 79 million in 2012. The blog post quotes Shope's note:
This rush of iPad competitors is not surprising in itself, as Apple tends to regularly define the direction of the electronic media and computing industries. What is surprising is that many of these products are not utilizing Intel microprocessors or a Microsoft operating environment. [W]e expect the vast majority of these devices to run the ARM architecture with either iOS or [Google's (GOOG)] Android as the operating environment. If this is the case and our tablet forecast is anywhere near accurate, this would be the first time in three decades that a non-Wintel technology has made legitimate inroads into personal computing.
Like the Titanic, Microsoft was once the darling among its peers. But unless it starts positioning itself to be more reactive to new trends, technologies and competitors, it too could find itself alone in the middle of the ocean, left to perish because it couldn't move fast enough.