Microsoft Stock Still Has Problems

Mr. Softy is buzzing these days. Microsoft (NASDAQ: MSFT  ) stock hit a new five-year high earlier this month, and it moved higher this past week on positive developments with its Windows 8.1 update for its flagship operating system.

However, we can't kid ourselves. Microsoft still has a lot of problems. We were reminded on Friday, when Morgan Stanley analyst Katy Huberty slashed her forecast for the PC market this year. She now sees a 10% decline in PC units shipping this quarter, revised lower from her earlier prediction of a mere 5% decline. 

Yes, she did consider the generally well-received Windows 8 update from earlier in the week. Folks just aren't buying desktops and laptops the way they used to, and that shines a brighter light on Microsoft's shortcomings in the areas that are growing.

Tablets and smartphones are the computing gadgets that are growing these days, and Microsoft trails Apple's (NASDAQ: AAPL  ) iOS and Google's (NASDAQ: GOOGL  ) Android badly on both fronts. 

Being a distant bronze medalist isn't fun. It has to shell out payments to hardware makers to support its devices the way it does with Nokia (NYSE: NOK  ) to get its Lumia phones out there. It has to create financial incentives to get developers of the more popular iOS and Android apps to commit to Windows versions of the programs. 

Even an area where Microsoft's lead seemed safe in this country -- video games via its Xbox 360 -- is now in question, after some poorly received restrictive features found gamers shifting their support to rival consoles. Microsoft's eventual about-face on that front was the right call, but it still will have to win back the trust of gamers this holiday shopping season.

Microsoft is growing despite all of the headwinds. Analysts see revenue growing 7% in the fiscal year that ends this weekend, and those same pros are targeting 8% top-line growth through the next 12 months. However, these are uneasy growth targets, as so many of the areas where Microsoft dominated have never been this susceptible to disrupting.

Microsoft stock keeps inching higher through the uncertainties. Apple -- despite being far ahead of Microsoft in the smartphone and tablet markets that are still growing -- is trading 44% below last year's highs.

Apple isn't perfect, naturally, but should both stocks be trading for 11 times forward earnings? Google is fetching a loftier 16 times next year's earnings, but it's the top dog in mobile operating systems. Big G is also growing considerably faster than Microsoft.

Don't confuse Microsoft's buoyant share price with fundamentals that are certainly not the best we've seen at the company in the past five years.

Microsoft has problems. Microsoft stock just isn't priced that way.

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Read/Post Comments (11) | Recommend This Article (2)

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  • Report this Comment On June 30, 2013, at 9:58 AM, lee654 wrote:

    Microsoft needs to keep in mind, with out customers you are out of business. They really insulted a very important segment of their business with the Xbox 360. I think their competition picked up a percentage of their customers.

    Nokia, can take them to the top throughout the world. The right decision would be to buy as much of Nokia as Microsoft could afford.

  • Report this Comment On June 30, 2013, at 10:58 AM, techy46 wrote:

    Microsoft need to provides products and services to enterprises and techonology professionals and leave the consumer toys to Apple and Google. Microsoft should never sacrifice their ability to build complex, configurable eneterprise ecosystems to serve consumers that are technically challenged by inexpensive copies of those tools. Most Android and iOS/OSx consumers should not use Windows.

  • Report this Comment On June 30, 2013, at 2:35 PM, Henry3Dogg wrote:

    "Microsoft Stock Still Has Problems"

    Hardly. It's Microsoft that's got the problems.

  • Report this Comment On June 30, 2013, at 2:49 PM, Henry3Dogg wrote:

    @techy46

    Come on. The only thing microsoft has got right in recent years was the xbox.

    Toys is now Microsoft's sole area of excellence.

    Microsoft's historic levers for milking the enterprise are slowly dying and Microsoft's attempts to stay relevant in the post PC era are failing one after another.

    Microsoft is looking more and more like RIM.

    It's going to take longer for Microsoft to collapse. But while Balmer is running the show there is little potential for a turnaround.

  • Report this Comment On June 30, 2013, at 2:59 PM, Henry3Dogg wrote:

    @techy46

    Can you give one example of iOS providing an inexpensive copy of a Microsoft "complex, configurable eneterprise ecosystems"

    But I agree that "Most Android and iOS/OSx consumers should not use Windows."

    Most Windows users shouldn't either.

    And they seem to be discovering this at an increasing rate.

  • Report this Comment On June 30, 2013, at 3:54 PM, symbolset wrote:

    OEMs are already mumbling insurrection. When they find out that XBox One can run Windows apps, that should be the start of open rebellion.

  • Report this Comment On June 30, 2013, at 6:05 PM, robmxa wrote:

    I have never bought a game machine. I have hated MSFT from the beginning. I have bought a Lumia 920. I will be buying an XBOX-1 and I will trade in my Lumia for the new Lumia 1020 or EOS.

    I am all in with Intel, Microsoft and Nokia.

    Things are about to change.

  • Report this Comment On July 01, 2013, at 5:33 PM, jvgfool wrote:

    What about Microsoft Server, Exchange, SQL, System Center, etc. We are so gadget centered that we forget about the backend. I feel this is a report that is half done. Sorry. By the way, gadgets don't have a lot of margin.

  • Report this Comment On July 01, 2013, at 8:51 PM, Galway21 wrote:

    Rick Munarriz is very bias on Microsoft ,, I think he is trying push Apple and Google as he must be one of these brokers who bought high and is trying convenes fools like us to help him get his money back My word it suck it up buddy

  • Report this Comment On July 03, 2013, at 10:56 AM, Krishnaraghava wrote:

    I disagree PC are declining in sales. It is just a tablet bubble, people will still need PCs and is just a temporary phase.

  • Report this Comment On August 16, 2013, at 8:23 AM, MikeFamous wrote:

    Microsoft is going to drown this year with PC sales down. Windows 8 being a poor system they invested all their time in, and took their shot and it failed. Windows 8 is Microsofts demise. They took their focus off the gaming market, and Sony is in prized position to take over Microsoft if the xbox one sales fail to exceed expectations. Considering the company has barely thought the xbox one fully through, and the specs have true gamers looking to the PS4. Sony has taken huge strides in the market to create its PS4, and is still trying to obtain a cable company namely ((Viacom (MTV, Nickelodeon) The same company that brought Directv to its knees by halting broadcasting to hold out for a higher pay out.)) Sony is going to own the market for gaming, and since Nintendo has dramatically lost users when it introduced its new system shows how people are willing to hold out for the best product. Google buying into the Sony tablet shows how much its value really is.

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