Instead of seeing its stock swept up in the positive momentum created by the impending launch of some major new products, Microsoft's stock is languishing. Even stockholder Paul Larson can see several of the reasons investors are thinking twice about the company: In this article, he discusses four of the challenges the company is currently up against.
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What's up with Microsoft (Nasdaq: MSFT)? With the first major update to its Office software suite in two years just launched, the all-new operating system Windows XP on the way, and the Xbox video gaming platform right around the corner, one might think Wall Street would be abuzz with Microsoft's new growth opportunities. Unfortunately, that's just not the case. Pulling up a quote on Microsoft, one can see that the stock is now trading below $60 -- its lowest level since April, roughly half its all-time high, and even with where the stock traded back in 1998. Investors, it seems, have other things on their mind when looking at the software giant. Problem #1 -- The EU It's uncertain just how much authority the EU has over Microsoft's practices, but today's news is yet another reminder that when working in a global economy, there are typically more than a few regulatory agencies to deal with. Even if Microsoft makes nicey-nice with Uncle Sam, it still has to contend with the EU. Lawyers never come cheaply. Problem #2 -- Stateside legal woes continue The fact that Microsoft was deemed a monopoly and violated the Sherman Antitrust Act has not changed, and there is still an open-ended legal question concerning what exactly will happen to Microsoft. Investors, rightfully, frown on the uncertainty. Problem #3 -- XP is playing to a tough crowd The stagnant economy has forced both businesses and consumers to seriously rethink their budgeting plans. It may be a tough sell in today's environment trying to convince customers to scrap their perfectly good operating systems -- or even their computers, if their hardware can't handle XP's memory requirements -- in exchange for a product that may only be marginally better than past incarnations. Problem #4 -- Ballmer I like Ballmer, and admire what his fiery bulldog personality has been able to achieve. Really. But when your company's CEO starts making the late-night comedy shows because he has a reputation of occasionally acting like a raving lunatic... not good. Being the new posterboy for antiperspirant... not good. (If you liked the first video, you'll love the dance remix, created by an Apple (Nasdaq: AAPL) fan, of course.) So yes, Microsoft has more than a few flies in its ointment today. I'm still a fan of the company and believe its competitive positioning and cash flow generating power outweigh all the negatives. But then again, I can see why some investors are thinking twice about Mr. Softy. Paul Larson can still remember a handful of DOS commands, and he owns Microsoft stock. You can see Paul's other stock holdings online. The Motley Fool has a progressive disclosure policy.
Today we learned that the European Union is borrowing a page from the Justice Department's book and taking a tough look at the company's competitive practices. Instead of focusing on the bundling of Windows and Internet Explorer like Uncle Sam did, the EU's anti-trust probe is concerned about Windows and Microsoft's Media Player being bundled and sold together. The Europeans are also concerned by Microsoft's dominance in the low-end server market.
Not only does it look like Microsoft will be racking up the legal bills across the Atlantic, but the company's domestic anti-trust problems are anything but resolved. A new judge was appointed to the case last week to decide what sort of punishment to dole out to Microsoft, and that punishment could be as severe as a repeat of the order to split the company in two.
Though Windows XP is being heralded by Bill Gates as Microsoft's "best operating system ever" and is supposed to be a major leap forward like Windows 95 was, it's playing to a very tough crowd that will weigh heavily the incremental benefits of the new product against its costs.
The economy has made computer users much more resistant to software "churn," and it remains to be seen if Windows XP is enough of a step forward to get people to open their wallets this fall and winter.
I can't write something about Microsoft and not mention the highly publicized antics of the company's CEO, Steve Ballmer. As one of my fellow Fools joked, "How can you watch Ballmer on stage and not want to short the stock?" (If you haven't seen it yet and don't mind visiting sites with profane domain names, check out the Ballmer video in question, taken at a recent Microsoft conference.)
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