Dueling Fools: Microsoft Bear

Microsoft (Nasdaq: MSFT  ) is a loser, Chuck.

I don't mean this in a schoolboy taunt sort of way. I'm just telling you it's not a winner. Why else would it have spent billions in the past year acquiring companies to beef up its presence in virtualization, cloud computing, and Internet search? Is it because the company is losing ground in those booming niches to companies like VMware (NYSE: VMW  ) , salesforce.com (NYSE: CRM  ) , and Google (Nasdaq: GOOG  ) , respectively?

Of course it is. You don't need to watch the "I'm a Mac, I'm a PC" commercials to see that Microsoft is taking a beating. You see it in the company's financials where its online unit, incredibly, is operating at a loss; overheating Xbox 360 consoles find the company taking a huge warranty hit for a system losing market share to the Wii; and the upgrade wave of its flagship operating system has been more of a ripple than a tsunami.

That last point is important. This was supposed to be Microsoft's final feast, the major last hurrah for its Windows Vista operating entry and its Office 2007 suite of applications before the inevitable embrace of cheaper open source operating systems and Web-based apps.

Delays didn't heighten anticipation. They only let the apathy simmer in a crock pot of interminable indifference. Despite the hubbub over Vista's features, revenue inched just 15% higher in fiscal 2007. The company is guiding investors to expect a 15% to 17% advance this fiscal year. Then that's all she wrote -- make that all she coded -- for Microsoft. Analysts expect the top line to inch just 10% higher next year.

In fact, even Microsoft will tell you that its fortunes peaked several months ago. After a blowout fiscal first quarter (that ends in September for Mr. Softy), the company's guidance implies a 12% to 14% top-line gain through the final nine months of the current fiscal year.

Forget the fact that it's Apple's (Nasdaq: AAPL  ) Leopard that is winning the critical praise. Forget the fact that companies like Google and Adobe (Nasdaq: ADBE  ) are jumping into the cloud computing realm where productivity software applications are served on the cheap in cyberspace.

All you really need to ask yourself is why you're invested in Microsoft in the first place. Is it because the company's dominance happens to be in the high-margin software space? That palatial estate is toast, my friend. Is it because Microsoft is such a brute that it can make up the distance in emerging growth areas the way it always has with its Web browsers and productivity suites -- by simply bundling them in new PCs? Man, that kind of thinking is as outdated as Y2K.

Microsoft isn't going away, but it will gradually lose its relevancy. Could be why Bill Gates is leaving this year, dedicating his time to giving away the money he made instead of sticking around, giving away the reputation he built. 

Smart guy. Even he knows that if Microsoft isn't a winner, it becomes a loser by default.

Read Chuck Saletta's bull argument.

Bear Rebuttal
Microsoft's Viva Pinata finds animated party toys trying to beef up their "candiosity" appeal. I'm starting my rebuttal with an obscure Microsoft property because Chuck is cheating you when it comes to the candiosity of the software giant's cash pinata.

I have no argument with Chuck's case for the attractiveness of cash in a recessionary environment. I'm with you! Why isn't Microsoft on board?

Cash and Short-Term Investments

6/30/04

$60.6 billion

6/30/05

$37.8 billion

6/30/06

$31.1 billion

6/30/07

$21.1 billion

With cash levels creeping even lower so far in fiscal 2008, Microsoft's cash mattress has shed two-thirds of its green feathers since peaking four summers ago. Chunky dividends, aggressive share buybacks, and overpaying for acquisitions aren't all bad. However, lighting cigars with greenbacks won't make rival products like premium Macs and dirt cheap Linux-powered laptops any less attractive or Google any less threatening.

In short, cash alone isn't the answer. If so, a company like Napster (Nasdaq: NAPS  ) that is trading essentially at its balance sheet greenery would reign supreme. You need vision, accelerating growth, and entrepreneurial gumption to be tomorrow's darling. Sadly, like its greenbacks, those qualities are also bleeding away with every whack of the pinata stick.


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