Source: Microsoft.
Are Microsoft's (MSFT -1.84%) best days behind it?
Unthinkable as recently as a decade ago, Microsoft has suffered from its sloth-like response to the development and eventual dominance of Apple's (AAPL -0.57%) and Alphabet's (GOOG 0.37%) (GOOGL 0.35%) leadership in the current generation of computing: mobile.
However, after years mired in internal politics and a laughable software and devices development, Microsoft has rediscovered a certain spring in its step, thanks to its first compelling suite of devices and software. But is this too little, too late?
We recently gathered a group of Foolish contributors to share their views on the matter. Read on to get our bull and bear perspectives on one of the most divisive stocks in big tech today.
Daniel B. Kline (Bull): Since Satya Nadella took over from Steve Ballmer in February 2014, he wasted little time putting his stamp on the company. The new boss broke down longtime walls and changed how the brand operated. Instead of working in an insular bubble where people needed Windows in order to use Office, Skype, or other Microsoft products to their fullest extent, Nadella opened up its software and services to rival platforms.
Nadella has very quickly changed Microsoft for the better, and the company's board even acknowledged that in an SEC filing detailing the company's executive compensation:
In fiscal year 2015, operating income and earnings per share declined, while consistent progress was made in building future growth opportunities. Mr. Nadella provided strong, consistent vision and execution on our mobile-first and cloud-first strategy, continued to effectively guide the transformation of the Company's culture and he effectively represented the Company with customers, partners, investors and employees.
Mr. Nadella established and articulated the Company's three broad ambitions to focus the Company's offerings, and consolidated the operating systems and devices groups into the Windows and Devices Group. Under his leadership, Windows 10 was successfully launched and the executive compensation program became significantly more performance-based.
In breaking from the rigid traditions of the past and fostering new innovation, Nadella has opened up markets for Microsoft's products. Under Ballmer, the company looked like a shrinking proposition acting as if consumers needed it. With Nadella at the helm, that mind-set is gone, and Microsoft is acting in some ways like a hungry start-up, introducing innovative devices like the Surface Book to prove it. Not everything will work, but the CEO has clearly taught this old dog some new tricks.
Anders Bylund (You can do better): Microsoft is in a good place right now. CEO Satya Nadella is taking the company in unexpected but welcome directions, and I think he's positioning the company to stay relevant and solvent for decades to come.
That being said, I still wouldn't buy Microsoft stock. It's too easy to find more attractive investments elsewhere in the tech sector.
If you're looking for unmatched staying power, you can't go wrong with IBM (IBM -0.89%). Big Blue may be in the throes of a major strategy shift, but the company has been there before -- many, many times across technology upheavals, economic meltdowns, and two World Wars. IBM always finds a way back, even when investors lose confidence in the new direction. That's happening right now, which is why you can pick up IBM shares at a great discount.
And if you prefer world-changing innovation, like the personal computing revolution that made Microsoft what it is today, I'd suggest Alphabet (GOOG 0.37%) (GOOGL 0.35%). The company formerly known as Google just shifted gears in a big way, showing the world that it's ready to move beyond simply dominating the online search and advertising markets on a global level. Granted, you might want to wait for a cheaper entry point since Alphabet's shares popped dramatically on the latest quarterly report. But as Warren Buffett says, there's nothing wrong with buying a great company at a fair price.
Again, I'm not hating on Microsoft, here. Not at all. It's a fine company with a reasonably bright future, and it should serve you well for years to come. But it's just too easy to find even better buys in the tech sector, with near-guaranteed staying power far beyond the next few years.
Andrew Tonner (Bear): To be clear, I'm a big fan of the direction Microsoft has been heading under CEO Satya Nadella. He's done an great job realigning Microsoft, long shackled by factionalism and individual fiefdoms in the Ballmer era, to fight for relevance in the now-secured mobile hegemony of Apple and Alphabet's mobile operating systems. But unfortunately, the deck might be too far stacked against them to recover at this late hour.
Despite its recent execution, Microsoft remains a company driven by two famously profitable, but aging, software products. Per the company's 2014 10-K filing, here's how Microsoft revenue breaks down along product lines:
Source: Microsoft FY 2014 10-K filing.
Although it carried some important benefits, Microsoft had to give away the first year of Windows 10 for 80% of its installed base in order to spur mass adoption. The PC isn't going away, and Microsoft enjoys an undeniable amount of leverage in PCs, especially among corporate buyers. Office, while far more stable, also faces disruption from competitors' productivity software, most notably Google Docs, and from a host of mobile-oriented upstarts like Slack.
One could argue that Microsoft's greatest strategic advantage is that it's deeply entrenched in the fabric of today's technology world. To boot, the company is again innovating around non-core products. However, as a company that has, in my eyes, irreparably lost the battle for mobile, I question how it can continue to grow its profits without sacrificing necessary profit centers (i.e., Windows) in order to recapture market share. It just can't have its cake and eat it, too, and investors would do well to dwell on the costs that will almost certainly come with Microsoft's coming attempts to retake mobile.
