Microsoft Corp (MSFT)

millionairefools (99.57) Submitted: 1/08/08 11:51 PM : Start Price: $32.98 MSFT Score: -0.24

I look at the revenue distribution of Microsoft (http://www.sec.gov/Archives/edgar/data/789019/000119312507225854/d10q.htm#toc29077_5) and cannot imagine them maintaining their lead over next 5-10 years in any of the segments except Entertainment (if that).

(In millions) 2007 2006
-------------------------------------------------------
Client 4,045 3,315
Server and Tools 2,902 2,496
Online Services Business 671 536
Business Division 4,108 3,423
Entertainment 1,928 1,010
Unallocated and other 108 31

Let's see the segments one by one.

Client : This is essentially Windows. Anyone who has even read basic networking architecture knows that there are two kinds of client (thick client and thin client). Thick clients are ones who have logic residing in the machine being worked upon by the user (currents OSs) and thin clients are one which have logic residing on the server and the client simply talking to the server (think email, Google Docs, online reminders etc.). Thin clients will become more and more popular due to exceptionally better online apps and increasing ubiquity of wireless networks. This makes sense too as this way computing power doesn't have to packed into individual user's CPU, thus bringing down the price of user computing entity. OLPC is a good botched example of what it can be. Microsoft seems to be running in the opposite direction here, making machines bigger - 2 GB RAM now comes recommended - wtf?
Most individual users use their machine to browse internet, write docs, listen to music and watch movies. We don't need a 2 GB, 2.6 GHz Core Duo leviathan to do that. OLPC has shown that all this can be packed into a little bundle. If someone implements this well and sells this - there's a market gestating for this. In 3-5 years, I am sure well have stunning thin-client machines which will have no hard-disk, simply 8 GB of RAM (so forget about memory swap) with maybe 15 client programs built in.
Even without this, OS X is eating into the segment. So, this is a going down.
You'll say, dude, you're talking only about North America and Europe. What about emerging countries? They do use Windows and will use it - that's a market. You're right that there is a market but very few of us have an idea how swiftly technology moves in developing countries. These countries' buying habits are very discerning and price is an important factor. Every year I go back to India for a visit, there's a new way of connecting to internet, a new service and new hot product. A better and cheaper alternative will swamp the market is a way never seen before, as anyway PCs have a shelf life of 2-3 years, so there's little chance of current product's entrenchment.

Server and Tools : This will have ho-hum growth, if that. Compatibility and single platform means a lot to even mid-size offices, so if they have their servers on Windows platform, they would buy the tools till the point they are sick of it. This is a very entrenched market and will not dilute easily. But, move to Java and open-source options is well-documented. My team runs 3 million-hits-a-day websites and we use Linux and Apache. Hiring a MS guy is also difficult, while on other hand Java is the de facto language. Ruby and stuff is on an upswing, only to eat into MS Server.

Online : Let's just save time here. Live bombed, msn.com is ho-hum.

Business : Ah, the other big boy, Office. (1) Most people don't use more than 10% of the features of Office; (2) Office has open standards now. This means we will have a lot of programs coming which do the most common 10% and eat away a significant amount of market. Also, things like Google Docs only makes having a client software unnecessary. Unless they have a program in line to put Office online, this is going to s**tter pronto. On second thoughts, they MUST have. But we have seen how good MS is in putting out online products.

Entertainment : XBox. Hope they don't screw this up. I don't like the company much but I would like to see it go out with dignity.

Unallocated : No point discussing potential rounding errors.


So, if you have a boring view of investing (i.e you talk in multiples of 5 years), I would love to hear your bull pitch.

Report this Post Replies: 7 | Reply