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Why I Won't Buy Microsoft Stock

By Steve Heller - Apr 16, 2013 at 6:00PM

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After continued lack of vision, I find it hard to justify owning shares.

Although tempting, a stock like Microsoft (MSFT 2.76%) may not be your best use of capital. The company has yet to meaningfully capitalize on the mobile computing revolution, which has taken a nasty bite out of PC sales. Last quarter, IDC found that PC sales declined by 13.9% year over year, primarily driven by poor reception of Windows 8, coupled with the continued assault from tablet computing. Given these factors, Microsoft's stock price remains entrenched in a "lost decade," lacking the necessary catalysts for investors to justify a higher valuation.

Ahead of its time
Windows 8 is a touch-friendly operating system that borrows successful elements from the tablet experience. Things like the Start Menu have been replaced with a home screen that resembles a tablet user interface. To fully benefit from all that Windows 8 has to offer, it requires a PC with a touch screen. The issue with the preposition is that touch-enabled PC devices have either remained in constrained supply or command a premium over conventional PC designs. Additionally, Microsoft has done a poor job educating consumers why touch is essential to the Windows 8 experience. In this context, it's easy to why Windows 8 sales are off to a worse start than Windows Vista, and why Microsoft's stock hasn't done much of anything since Windows 8's debut.

Unnecessary confusion
Aside from an absurd writedown, Windows RT could quite possibly be the worst direction Microsoft has gone in recent years. Windows RT is powered by ARM designs, meaning it is not compatible with legacy Windows applications, which run on Intel (INTC 2.46%) x86-powered designs. This fundamental difference has led to confusion between Windows 8 and Windows RT, resulting in the less-than-stellar reception of Windows RT. Ultimately, I believe that Microsoft will have little reason to keep Windows RT in its stable once Intel delivers compelling tablet processors. The prospect of Intel in a $200 to $300 Bay Trail-powered tablet running the full version of Windows 8 could resonate quite well with consumers and potentially provide a catalyst to Microsoft's stock price.

Just a hobby
Having ended the year with less than a 3% share of the smartphone market, the Windows Phone franchise remains a hobby that will likely have little impact on Microsoft's stock price for the time being. However, this hasn't stopped Microsoft and Nokia (NOK 0.98%) from pursuing growth in emerging markets, where smartphone saturation remains low. Currently, Nokia accounts for nearly 75% of Windows Phone devices worldwide, indicating the importance of Nokia's success for Microsoft's smartphone ambitions.

A Window with a view
The deeper Microsoft can unify the smartphone, tablet, and PC experience, the greater the likelihood it can sell the value of choosing Windows to consumers. Microsoft could theoretically embrace Intel's processors across the computing gamut, ultimately creating a "one Windows" solution. This approach would likely invite more interest from consumers since it would give them access to the world's largest ecosystem, no matter their device. Until then, I don't believe Microsoft's stock currently possesses enough positive characteristics to make its way into my portfolio.

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Stocks Mentioned

Intel Corporation Stock Quote
Intel Corporation
INTC
$44.55 (2.46%) $1.07
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$273.24 (2.76%) $7.34
Nokia Corporation Stock Quote
Nokia Corporation
NOK
$5.14 (0.98%) $0.05
ARM Holdings plc Stock Quote
ARM Holdings plc
ARMH

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