Wow! Talk about a busy earnings season. I haven't had much time to breathe lately, which explains the lack of blogs these past several days. The financial flurry has been non-stop and right now is the first chance I've gotten to catch that long-lost breath. And it gives me an opportunity to focus on Microsoft, which reports after the bell today.
The Street is looking for 46 cents on $13.89 billion in revenue. Analysts will be paying careful attention to the bookings number for Microsoft, which should see an added boost from nearly $1.3 billion in deferred revenue from last quarter.
More importantly, this will be the Street's first good look at the impact from Vista. There have been so many different studies and market research out there, it's been tough to get a clear picture of just how good or bad Vista is doing. Dell's recent announcement that it would be offering Windows XP because that's what its customers were demanding also served as a smack in the face for Microsoft. Microsoft CEO Steve Ballmer didn't help matters earlier in the quarter when he warned Wall Street that Vista revenue projections were "overly aggressive."
Still, there are many other issues facing this company, not the least of which is Microsoft's ongoing problems in trying to innovate. There's a heavy focus today on guidance for the rest of fiscal 2008. Microsoft, like Apple, is typically conservative. But that, of course, is where the similarities end.
Microsoft's Zune music player at best has failed to capture the imagination of consumers; at worst, it has done absolutely nothing to Apple's near-monopoly of digital music. Microsoft still pins its hopes on the PC business instead, which offers fewer and fewer opportunities for growth.
"When you look at the PC business, it is usually viewed as a low margin business. Apple has done a very good job of controlling pricing, controlling costs. Earnings and revenue growth have followed, and unit growth has followed as well," says Bill Fearnley at FTN Midwest.
Microsoft also can't seem to find that winning formula against Google, another company chipping away at Microsoft's relevance as "the" leader in technology. Microsoft lost the bidding war for DoubleClick, and now it's left fumbling for some way to derail the Google Gravy Train.
"In terms of being an overall growth company, that's challenging for Microsoft. It has been for the last five years. It will be for the next five years," Brendan Barnicle and Pacific Crest Securities tells me.
Microsoft also faces a growing mobile threat from BlackBerry maker Research in Motion, now that RIM is licensing its mobile operating system to other device manufacturers. So if it weren't already bad for Microsoft, it's getting worse, with competitors lifting pages from the company's own playbook -- not to mention more mobile competition from Apple, when it releases its iPhone in June.
"The phone market is a billion-unit opportunity, and Apple's clearly seen that," says Harry Blount at Lehman. "I do think this will be a significant driver of (Apple) for the next two to three years."
And don't count on any help from Xbox, at least not yet. Just today, Nintendo announced a nearly 90% profit-pop, pumped in part by the better-than-expected performance of their Wii. With a newer, better and more expensive Xbox hitting store shelves now, analysts worry that the product's path to profitability may now have speed bumps.
"They had hoped to have Xbox profitable next year. I don't know if that's possible given the hardware they added to the Xbox," says Barnicle.
There's a quantum shift afoot in technology right now. Call it "Back to the Future" for Microsoft. The company became a monumental success by catering to businesses, and then having its technology seep into the home as consumers sought to be as productive at home as they were in the office. But now, technology is helping consumers become "connected" and "creative," and targeted more to people outside the office. That was Apple's original marching orders, and that's where Microsoft has lost its edge. That's why so-called upstarts (but arguably monopolies-in-training) like Google, Apple and possibly RIM, are eating Microsoft's lunch.
Microsoft has become stodgy and unable to offer compelling innovation that ignites excitement. But that hasn't been its goal. It's not meant to "excite" IT managers. It's meant to offer updates and upgrades on a very specific, predictable timeline. The last thing IT purchasing managers want is a "surprise."
Exactly the kind of strategy Apple, Google, RIM and a growing list of others hope Microsoft never abandons.
Microsoft is relatively safe money, but so are muni bonds, until the Fed starts raising rates again. If you're looking for real growth, and real excitement, it seems like there are a lot better options out there.
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