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Microsoft’s Struggle Continues
Posted by: Muhammad Bazil (IP Logged)
Date: December 31, 2012 10:45AM

Microsoft Corporation (MSFT) is the biggest software company in the IT industry; however, the company seems to be losing its ground due to shifting market dynamics. With the rise in the number of competitors, Microsoft is finding it difficult to maintain its market position. The biggest competitors to the company are: Google Inc. (GOOG) and Apple Inc. (AAPL). Both the companies have risen to the highest peaks of success over time, and they have disrupted the market which was once monopolized by Microsoft. Apple’s Mac operating system is in direct competition with Microsoft’s Windows operating system, and the rising popularity of Mac has caused a decline in Microsoft’s revenue from Windows. Similarly, Google has been developing its cloud applications at a rapid pace and these applications are in direct competition with Microsoft’s cloud applications. Therefore, the increasing popularity of Apple and Google is gradually pushing Microsoft out of its place.

Microsoft’s Market Performance

Microsoft’s share price is following a downward trend. There are various factors responsible for the downturn. Some of the factors are: strengthening position of the competitors, lower-than-expected response for Microsoft’s latest releases, and the overall economic conditions. The downward trend of the stock can be evidenced by the fact that the shares are being traded at a price near their 52-week low. The current range for the stock price is $26.55 and $26.90, while the 52-week range of the stock price is $25.91 and $32.95. The following chart represents the trend of Microsoft’s share price over the last year:

As can be observed in the chart, the stock price of the company has been falling since October. The stock has been highly volatile throughout the year; therefore, it may be a risky investment avenue for short-term investors. It can be observed that the stock slightly recovered in November but the average trend has been downwards.

Strong Market for Windows Phone 8

Despite the rising competition, there are certain factors that are favorable for Microsoft. One such factor is the growing market for Windows Phone 8 mobile operating system. The market for Windows Phone 8 has grown exponentially in 2012, and it is expected to grow in 2013 as well. Microsoft has recently added around 75,000 new applications to the library of applications compatible with Windows Phone 8, and the increase in the number of applications is expected to attract a large number of users. It is being anticipated that Windows Phone will acquire 11.4% market share by 2016. The smartphone market is currently held by Apple’s iOS and Google’s Android; however, the rising popularity of Windows Phone 8 is expected to make Microsoft one of the major market players as well.

Weak Results for Windows 8

There were concerns regarding Windows 8 ever since the details regarding its user interface were announced. Microsoft’s Windows 8 is completely different from its predecessors. Windows 8 is heavily influenced by the operating systems in tablets and smartphones. There is already very high competition in the tablet operating systems. The biggest players are, once again, Apple and Google. Apple’s iPad is the most popular product in the tablet market, and there is a wide range of Android tablets available in the market. Microsoft released its own tablet, Surface, with a light version of Windows 8; however, the company has observed weaker-than-expected results for both the hardware and the software.

Since Windows 8 is focused on tablets, the launch of the new operating system has caused very little interest among PC users. As compared to Windows 7, the new operating system has failed to make a commendable mark in the market.

After the analysis of multiple factors that may influence the prospective market performance of Microsoft, investors should hold their shares in the company. Selling the stock at this point may cause a significant loss; therefore, holding the shares may be a more rational decision. Although Microsoft is facing stiff competition, there are certain aspects of the company that are receiving a favorable response. One such aspect is Microsoft’s presence in the smartphone market. Where on one hand, Microsoft has received an unfavorable response in the PC operating system market, it has received a favorable response in the smartphone market.

Stocks Discussed: GOOG, MSFT, AAPL,
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