Yoshikami: Microsoft's Victory Chant
Microsoft hosted its annual analyst day in Redmond yesterday, laying out its plans to dominate the consumer electronics market as well as convince investors that the company is on track to re-energize growth.
But many questions remain for this technology giant.
In discussions with analysts, CEO Steve Ballmer and his team detailed many initiatives for its eight key business segments: Xbox & TV, Bing, Windows Phone, Windows, Microsoft Office, Windows Server, SQL Server database, and Business Users (e.g. Exchange, SharePoint, Virtualization).
In its Enterprises & Devices Division, there are two new products expected for the 2010 holiday season. The Kinect motion controller for Xbox, and Windows Phone 7, an advanced operating system for phones, were touted as major winning products; but whether that dream will turn into reality remains to be seen.
Bing continues to gain traction in search and momentum is clearly on their side. Additionally, Microsoft has embraced Cloud computingand its products are moving towards virtual integration.
The company is benefiting from a healthy consumer demand for Windows 7 with sales hitting 175 million copies to date, and according to Microsoft, the product his already installed in one out of seven computers globally. And with the economy making a modest recovery, the technology refresh cycle is now on the upswing with pent-up demand being unleashed after two years of IT belt tightening.
Still, despite an impressive day, Ballmer and his management team have their work cut out for them.
There is a great deal for them to try to accomplish in order to impress investors and so far, it is proving to be difficult.
While sales have increased, the stock ended the week at 50% below its price at the beginning of January 2000.
Better than dot-com disasters but clearly disappointing for investors. (Get Real-Time Stock Quotes for Microsoft Here)
What is crucial for investors is the future direction and profit directory for the company. Will they be able to avoid missteps such as their recent failure in cellular phone handset sales (farewell Kin and $300 million USD of development costs)?
Similarly, while Apple and Google are ringing in profits and gaining significant market share on the mobile front, Microsoft is still trying to play catch-up in terms of a viable mobile operating system. The company has to move fast or Windows Phone 7 may end up being a lost cause.
"There is a great deal for them to try to accomplish in order to impress investors and so far, it is proving to be difficult."
Can they do it?
Can the company replicate its PC dominance with the tablet, and can they quickly come up with a compelling product to compete with the iPad?
And lets not forget the Cloud. How does Microsoft see long-term opportunities in Cloud computing? As with many other tech companies, Microsoft has placed more emphasis on Cloud computing and is trying to unlock the potential monetary opportunities with products such as Windows Azure.
But how will that impact profits for more traditional products? What will the pricing look like and will they be forced to price like Google that gives away many services for free?
All important questions and none with clear answers. True, Microsoft is a company with massive free cash flow and a market position that is the envy of peers. But the company must show that it can effectively compete on new fronts against savvy competitors.
The blueprint is laid out.
Lets watch to see if this is simply lofty rhetoric or a plan to win.
Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top 100 investment advisors in the United States for 2009 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at firstname.lastname@example.org.