Microsoft's Leadership Is Still Failing

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Microsoft's (NASDAQ: MSFT  ) CEO, Steve Ballmer once said, "The launch of Windows 8 is the beginning of a new era at Microsoft. Investments we've made over a number of years are now coming together to create a future of exceptional devices and services, with tremendous opportunity for our customers, developers, and partners."

All of that sounded great when I first heard it. But many Wall Street analysts never bought into the hoopla. And, as evidenced by the disappointing sales figures for Surface and Windows 8, it seems consumers never really "bought it," either.

Clearly, Microsoft's desire to reinvent itself is not going as well as the company had hoped. In fact, I'm not holding my breath to see any drastic changes in the foreseeable future. For that matter, neither is the Street.

Aside from the fact that there's a gross dislike for the company's management by analysts, proud supporters of Microsoft have begun to lose patience. Microsoft is still getting punished because it's not Apple, a company whose hardware focus has led to vast growth in the past decade. Fairly or unfairly, that's reality. Unfortunately, management has fallen prey to this.

While the company has been trying to be what the Street wants it to be, Microsoft has made the mistake of taking its eye off what it's truly good at. Microsoft now wants to be a hardware company, and thinks it can take Apple and Samsung head-on.

Unfortunately, the company is making this transition when everyone else has begun to realize that "software is the new hardware." Even Cisco has begun to shed its hardware dependence, and is now evolving toward software-defined-networking. Just imagine if Microsoft was able to capitalize on its software expertise to get into the networking business.

Microsoft would be able to control the operating systems and the data that travel across network enterprises. While Cisco would still remain dominant, Microsoft would be a legitimate threat. All Microsoft would have to do is pick-off one of Cisco's chief rivals. F5 Networks or Juniper, which has been trying to sell off some assets and is led by a former Microsoft executive, might be great targets. Microsoft has already had some success in virtulalization, and we see its main rival in the space, VMware, making its own moves into software-defined networking. 

Then again, this is Microsoft's management we're talking about here. Ballmer would not dare do something so drastic or game changing. Instead, the company prefers to focus on personal computers, which Microsoft still relies upon for 80% of its business. This is despite the fact that PCs are dying a slow death.

Meanwhile, the cloud market is projected to grow by $177 billion over the next two years. Here, too, Microsoft has appeared too slow to respond to the likes of Oracle and Instead, Ballmer has been trying to fight Apple in tablets and phones – it's not working. Interestingly, this is despite the fact that Apple's Tim Cook just said the company was actually not a hardware company, and emphasized software and services. 

Microsoft needs to wake up. Granted, it's true that the company has made some progress in smartphones and mobile devices. But so has BlackBerry and Nokia. And anyone who believes that either of these companies can put a dent in Apple's lead is fooling themselves. Microsoft needs to go in a different direction.

Smart companies, like Oracle, which has recently picked off Acme Packet aren't afraid of taking risks and diversifying their assets. While Microsoft is able to boast solid cash flow, it does not have a reputation for effectively deploying its capital – at least not to the extent that it's able to produce the growth that Wall Street craves.

As much as I've valued Microsoft's influence on tech, I'm beginning to feel that I would love the company more if it were under new management, one that can change directions.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that, while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

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  • Report this Comment On April 05, 2013, at 10:04 PM, jwyoungy wrote:

    If you think that the iphone can't be taken down by Microsoft or Blackberry than your a fool. Blackberry used to have people say things like that when they had over 40% market share and look at them now. The new phones by Microsoft and Blackberry are better than the latest version of the iphone by almost every measure and people are seeing that on reviews and by trying them out. There are kids buying their first smartphones every day who don't think that having an iphone like Mom and Dad is very cool. I promise you that in 2 years time the iphone will have less market share than it does now. Apple is not divine, it's just a company that has a good marketing machine behind it.

  • Report this Comment On April 05, 2013, at 10:15 PM, normcf wrote:

    "Just imagine if Microsoft was able to capitalize on its software expertise to get into the networking business." Since microsoft's mantra is windows, windows, windows, I can't imagine many enterprise customers buying a switch or router that needs to be booted daily, takes hours to apply patches weekly, needs to be re-imaged every time it gets too hard to fix and is susceptible to malware.

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