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Software Giant Microsoft Has to Solve Big Problems

May 03, 2011 | About:
Earnings of the company are still strong but the divisions suffer under ongoing headwind. Microsoft (MSFT) needs to reinvent itself.

A sales increase of 13 percent to USD 16.43 billion within the third quarter of fiscal year 2010/2011 and an increase in earnings per share of 31 percent to USD 0.61 should be a solid performance. Nevertheless, Microsoft (MSFT) has solved none of its operational business problems. The online business of the world's largest software company recognized a negative income of USD 726 million. Those are still huge losses. Microsoft’s smartphone business is still on the ground and the conquest of the digital music market with the company's own player "Zune" as an iPod's rival failed. Now, Microsoft's most important division - Windows - reported a sales decline of around four percent on last year. This corresponds with the recently published figures for the personal computer market for which a decline of 3.5 percent is called.

That would not be so bad if the world had not turned further. More and more people are working on the Internet with techniques that do not need Windows support. There are tablet computers, smartphones, and browser or app-based online services like Google Docs, drop box or Evernote. The next wave of services will come when Google’s (GOOG) operating system Chrome meets the laptop market, and HP (HPQ) launches its webOS.

Windows 8 comes in 2012 and should be run on additional processors as Intel's x86 which dominate the PC market as of today. Many of these chips do not power Tablet PCs. Microsoft CEO Steve Ballmer has therefore no other choice to launch Windows 8. The second major cash cow of the company, the Office application, stands and falls with Windows as its base system. It must be rescued quickly into the tablet world if the smartphone market is already lost.

Even optimistic forecasts of consulting group Gartner approves Microsoft by 2015 a market share of 30 percent if the cooperation with Nokia succeeds. But 30% would be nothing compared with 90% market share that Windows had in heydays within the PCs market. In Core markets will this only a fight under equals with Apple (AAPL) and Google (GOOG). No rosy prospects.

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Comments

Alex Morris
Alex Morris - 2 years ago
"That would not be so bad if the world had not turned further. More and more people are working on the Internet with techniques that do not need Windows support. There are tablet computers, smartphones, and browser or app-based online services like Google Docs, drop box or Evernote."

Windows is not hurt if people use it less frequently on their computers; it is hurt if people stop buying it, or should I say PC's in general (since 90% run Windows). The question is, will people stop buying PC's as they use tablets and smartphones? In my opinion, the answer for the significant majority is decidedly no; double digit growth in PC sales (as predicted by Gartner) coincide with that belief.

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