MSFT

[ERICOPOLY]

One of the reasons why Apple is so good is that their backwards compatibility is so atrocious.  They have had the flexibility to just completely toss out the old and reinvent their platform.

 

Microsoft can't do that to their corporate customers.  So you get these products that are compromises between the past and the present.

 

I would not trust Apple with my desktops if I were a very large corporation.

[shalab]

What I like about the Google and Apple strategy is that they are attacking the Microsoft castle from the fringes and not head on.

 

The legend goes that a long time back there was a great emperor who founded a successful and powerful dynasty that ruled all land from present day Iran to Thailand. His minister was a genius in political chess that guided the prodigious child to be an emperor. The minister was once going around town and he heard a woman scolding her son for eating hot rice from the middle as opposed from the edges where it tends to cool quickly. The woman was comparing her son to the minister's strategy. The minister realized his mistake and soon fixed his strategy to fight the existing kingdom from the edges. He was successful in executing his strategy.

 

Apple knows the windows franchise is strong and can't be attacked head on. You start from the lower end, change the business model in how you reward app writers and use it to build a moat around you just like Microsoft did. Then you move up the chain to unseat the incumbent.

 

Similarly, Google is starting from the fringes with gmail/chrome and google docs and slowly encroaching space and challenging established businesses. Gmail has become the best e-mail client by steadily adding features. Chrome is gaining market share in the browser space steadily.

 

Last I saw both apple and google's margins haven't eroded despite the competition. Let us not forget that it was IBM that held sway in the corporate market once. Corporate IT will do what the people want - sooner or later.

 

cheers!

 

[gokou3]

One of the reasons why Apple is so good is that their backwards compatibility is so atrocious.  They have had the flexibility to just completely toss out the old and reinvent their platform.

 

Microsoft can't do that to their corporate customers.  So you get these products that are compromises between the past and the present.

 

I would not trust Apple with my desktops if I were a very large corporation.

 

Exactly why I think the money will keep rolling into the MSFT castle.

[Eric50]

I think you are making good points that in the long term Microsoft's moat will be shrinking. I frankly don't know what kind of sustainable competitive advantage Miscrosoft will have in 10 years. However, what I see know is that one can buy a dominant business with a lot of short term momentum (next 3-4 years) for 11-12 times earnings and a super strong balance sheet:

 

- MSFT is still the dominant OS for PCs and corporations and we are at the beginning of an upgrade cycle. A report from Forrester Research mentioned that less than 10% of corporate PCs had upgraded to Vista two years after its release. There is a huge potential there for Windows 7. I'm sure people who are still using Windows XP are dying to get an upgrade to Win7. I don't know any other reasonable alternative;

 

- Office is also still dominant. While I agree that products like Google spreadsheets have a long term potential for disruption, they are currently far inferior to what MSFT offers. I worked as a financial controller in a large corporation and I was using Excel extensively.  I doubt corporate users will switch soon to Google Spreadsheet...

 

- Windows 7 and Office are - by far -the largest cash flow contributors. I don't see any short term danger to their moat;

 

- Mobile and smart phones are clearly an issue. MSFT has missed the boat so far. The little I've read on their new phone OS (Windows Phone 7) is quite encouraging but they've already lost a lot of market share. This is frankly a concern;

 

- We might have a good surprise with SharePoint 2010 that is released this quarter and with the SQL Server Database. Both have good reviews.

 

Overall I think the downside risk (at $25) is quite limited and there is a good upside potential. I don't intend to buy and hold forever but the odds are quite in my favor at that price.

 

For the record i had a position last year, buying stocks and calls at $20 in the spring and selling at $30 in December. I like the business more now than I liked it then (and it's safer in the current environment).

 

 

 

 

 

[20ppy]

MSFT's corporate customers will remain for a long while, just as IBM's many years ago. PCs will gradually be for large corporations and academia. The paradigm shift is not that the existing PC market will vanish, rather it's the new concept that people don't have to learn anything to use a computer or device, for the greater majority of mankind anyway. So, in that regard, MSFT does not have a future as it appears, they can still try, but it will be very difficult. APPL gets it and has occupied the market and mindshare. Their iPone apps directly can be ported to iPad, and iPad Next will be more powerful than PCs. Who can afford to use anything else when all the apps are on iPad Next?

 

[uncommonprofits]

The paradigm shift is not that the existing PC market will vanish, rather it's the new concept that people don't have to learn anything to use a computer or device, for the greater majority of mankind anyway.

 

There is a good possibility the desk top of the future evolves to simply a keyboad and display with the brain power coming from a mobile device.  As rapid as things are happening it might not be as far away as people think either.  So yes desktop PC's might not vanish - but they could have the bulky guts stripped.  Desktops have already shed a lot of bulk over the years - and this trend is likely to continue.  Microsoft's OS could be challenged when/if there is a shift of the brain power from the desk top to the mobile device.  It's probably coming -- just a matter of how long -- and whether MSFT can adapt.

[uncommonprofits]

APPL gets it and has occupied the market and mindshare.

 

I don't think this is a slam dunk for AAPL.   Android is rapidly catching up -- with many of the large enterprises pushing it along.  A lone hardware based enterprise was not able to do it all in the past (although IBM tried) - I don't think that will change in the future.  MSFT succeeded because it was software based and got much of the industry behind them.  Android is not only software based (also, with much of the industry behind them) -- the OS is free and code unlocked, opening up a whole new realm of innovation not available in the past for hardware manufactuers.  

 

Their iPone apps directly can be ported to iPad, and iPad Next will be more powerful than PCs. Who can afford to use anything else when all the apps are on iPad Next?

 

Is this an asset or a liability?  What about non-Apple devices?  Problems with portability to other devices has been a problem for Apple in the past which could potentially repeat itself.  Then again we could be locked in a world where we have a few very viable competing OS's whereby portability becomes a problem/opportunity for app developers to figure out.  

[mpauls]

 

Here's my take on the two. 

 

(1)  Both are good businesses. 

(2)  From an owner's perspective, Microsoft is still the better business.

(3)  From an investment perspective Apple is way too expensive.

(4)  Where will each company be in 5 years?  Both have very uncertain futures.

 

 

The attractiveness of Apple's current numbers-the fact that they have no debt and lots of cash-may make apple look like a pretty good investment. It also seems like everyone wants either an ipod-touch, iphone, ipad, or mac computer, not to mention itunes and the app store earn a good amount of money.  Do I dare suggest that Microsoft is currently a better buy than Apple? That is exactly what I'm suggesting. At the current price Apple is simply just not that attractive, especially when compared to Microsoft.  Plus your buying earnings, yet both have income streams that are hard to figure out even 5 years down the road.  These are not one foot hurdles.

 

 

Uncertainty is a big factor for both Microsoft and Apple.  But which is likely to have a better fate in 5 or 10 years from now.  As it stands Apple seems to be putting out the hot products while any mention of Microsoft is generally to complain about Windows. 

 

Apple has to defend several markets simultaneously, Microsoft doesn't and still owns the operating system business.  Apple has to defend against, Google, HP, Dell, Motorola, HTC, Microsoft etc.  Microsoft has Apple & Google-tough, but doable.  That is, Apple has several huge businesses in separate markets chomping at their heels waiting for a slip-up, not to mention the guy operating out of his garage, so if apple does not stay ahead in terms of making people think their next cool gadget is worth the premium, then in 5 years they will certainly not be in the same place they are today-in terms of economics.  Though economics are certainly the primary driver of value (and therefore also price) over the longer term, markets often react to short term perceptions.  Should Apple's perceived prospects be anything but stellar 5 years from now, the price is almost certain to be proportionally lower in the future.  Don't let our current perceptions of relative prospects cloud rational thought. By rational thought in this sense, I mean over-weighing what we think we know, but don't.

 

Finally, as you'll see in the graphic below, Apple has not paid a dividend in over 10 years and have had to put every dime back into the business. Net, Apple's issued significant amounts of stock-diluting owners. 

 

I'm an advocate for apple products and I have both a mac and an iphone, but if I were forced to buy one, I'd by Microsoft.  Thankfully I'm not forced.  Their futures are too uncertain.  I think many people betting on Apple are over-weighing what they think they know, but don't.  Even if you love apple's prospects, if you do the math I think you'll end up agreeing with me.

 

http://mattpauls.com/images/AAPLvsMSFT.jpg

 

 

Matt

 

 

[tiddman]

I think the amazing thing about xbox is it emerged from a nobody to a significant player.

 

This is not so amazing to me because Microsoft has an essentially unlimited budget which allows for unlimited R&D, acquisitions, and marketing.  It would be a catastrophe if they introduced a new product and it was NOT a significant market participant, such as the Zune.

 

The XBox has become a significant player, but that segment has not made money in aggregate despite the millions that has been thrown at the business.  From a return-on-invested-capital perspective it is a failure.  This demonstrates Microsoft's problem in trying to grow other business units -- they have unlimited resources but can't start a new business area that makes money.  The organization is not good at innovation or predicting or creating markets in the ways that their competitors are.

 

I think their core desktop ops will gradually and continually decline while producing a lot of cash.  The "problem" with having ~95% market share a few years ago is that market share can only go down, and I think it has, and will continue to do so.  I am not sure if the current market cap can be justified just by those ops, so I don't think it is a great buy.  They aren't going to "go away" but just like technical dinosaurs of the past they'll become less and less relevant.  Supporting their legacy installed base will continue to be a huge cost on them.  Apple's model of not supporting any hardware or software that is more than about 2-3 years old is superior from a business perspective because Apple doesn't have to bear that cost or allow legacy products to hamper their development of new products, as is the case at Microsoft.

 

I agree with Tiddman's comment that perhaps a takeover of RIMM could be in the cards for MSFT

 

For the record this wasn't my comment :).

 

[Guest misterstockwell]

   Supporting their legacy installed base will continue to be a huge cost on them.  Apple's model of not supporting any hardware or software that is more than about 2-3 years old is superior from a business perspective because Apple doesn't have to bear that cost or allow legacy products to hamper their development of new products, as is the case at Microsoft.

 

Yes, customers love when the extremely pricey equipment they bought 2 years ago is no longer supported. Good plan.....oh, wait......

[tiddman]

Yes, customers love when the extremely pricey equipment they bought 2 years ago is no longer supported. Good plan.....oh, wait......

 

Well Microsoft customers like the extremely pricey software they bought from Microsoft 5-10 years ago, but have no incentive to upgrade and thus send more money Microsoft's way.  Microsoft hasn't put out a desktop product in 10 years that presents a compelling upgrade, so they are missing out on those potential revenues.  They try to force people to upgrade via licensing and lawsuits and such but the new products simply aren't better so everyone drags their feet in upgrading.

 

I have a copy of XP that I bought 5-6 years ago which, despite not being Vista (or perhaps because it is not Vista) suits my needs fine.  Even if they do "fix" Vista I have absolutely no reason to upgrade.  My Microsoft Office suite is from 2001.  I might use these for another 10 years.

 

Compare that to seemingly disposable hardware and software sold by Apple such that everyone upgrades every 2-3 years.  Google has a different revenue model but as long as they remain current/relevant they'll continue to derive ad revenue from their products.

[Viking]

It seems all are in agreement that in the short term (the next couple of years) the company will continue to earn lots of cash.

 

The key to this company then becomes what they do with their excess cash:

1.) They have instituted, and grown, the dividend payment.

2.) They also have been buying back shares.

 

I must admit that I am a little concerned that they may blow it on a large ill-conceived aquisition (classic empire built). Offsetting this concern is Gates link to Buffett/BRK, which one would hope would help ensure this does not happen. One area of opportunity is should stocks fall again and test the March lows from last year, companies with cash (MSFT) may get the (second) buying opportunity of a lifetime. In summary, from my perspective, the risks pretty much balance. 

[uncommonprofits]

Compare that to seemingly disposable hardware and software sold by Apple such that everyone upgrades every 2-3 years.  Google has a different revenue model but as long as they remain current/relevant they'll continue to derive ad revenue from their products.

 

Over the last year or so - Android's updates have outpaced Apple by about 6 times (or more).  Google has little reason to hold back an update (other than to let device manufacturers keep up to the rapid pace).  Google intruduced ver. 1.5 (Cupcake) just over a year ago (end April/09).  Since then they have had 3 updated versions: 1.6 (Donut), 2.0/2.1 (Eclair), and just a couple weeks ago 2.2 (Froyo).  Their updates will probably slow down a bit -- but as long as device manufacturers can keep up -- I suspect they will continue to outpace the others by a good margin.  Because it is free, Google does not have the same reasoning to hold back that MSFT and Apple would otherwise have.  The benefit for Google is what this brings to it's burgeoning mobile search business.  Everyone wants an iPhone right now -- but from most indications Froyo could be taking quite a huge jump ahead of iPhone's current OS.

[DCG]

Compare that to seemingly disposable hardware and software sold by Apple such that everyone upgrades every 2-3 years.  

 

 

I don't agree with the statements that Apple only supports it's software and hardware for 2-3 years, and that everyone upgrades every 2-3 years. Much of Apple's current software and OS will run on somewhat old Macs (a caveat is that Leopard generally won't run on the older computers that do not have Intel hardware). People do not upgrade their mac computers every 2-3 years. I've personally owned only Mac's for the last 10 or so years and am only on my second computer, which I don't plan on replacing any time soon. As far as products like phones, people usually get new phones every 2 years, regardless of what type of phone they have and what company manufactures them. I'd argue that if people upgrade Windows products less frequently, it's because the products aren't innovated very often, and people are even afraid of upgrading Windows OS due to problems.

 

 

[rmitz]

I don't agree with the statements that Apple only supports it's software and hardware for 2-3 years, and that everyone upgrades every 2-3 years. Much of Apple's current software and OS will run on somewhat old Macs (a caveat is that Leopard generally won't run on the older computers that do not have Intel hardware). People do not upgrade their mac computers every 2-3 years. I've personally owned only Mac's for the last 10 or so years and am only on my second computer, which I don't plan on replacing any time soon. As far as products like phones, people usually get new phones every 2 years, regardless of what type of phone they have and what company manufactures them. I'd argue that if people upgrade Windows products less frequently, it's because the products aren't innovated very often, and people are even afraid of upgrading Windows OS due to problems.

 

Agreed.  Even applecare lasts for 3 years.  Apple users tend to upgrade more often for, I think, two reasons:

 

1) Apple makes stuff worth buying to upgrade (techno-lust)

2) Target market is people who have the extra cash to spend on a higher quality product (easier to use or simply more sexy)

 

That said, my mother still emails and does some web browsing just fine on her 6 year old mac.

[mpauls]

I'm not sure why I keep involving myself in this conversation, because I really don't have a clue here, but considering the demographics, there are a lot of people retiring that are almost certain never to consider anything but Microsoft.  Struggling to learn a new OS I don't think is an option for most people 55 and up.  They didn't grow up with computers and don't care to understand them beyond what they already know.  I'm not saying it's really that hard to switch, but the perception is that it is hard.  I suppose my point is that I don't see Microsoft's revenue going away anytime soon.  Bill & Steve have a good reason to keep MSFT from dying, but we'll have to wait and see. 

 

                                  Shares          %OS        Value     

Gates (William H III)  660,971,294    7.54        18,950.05 

Ballmer (Steven A)    408,252,990    4.60        10,500.27

 

 

[Guest longinvestor]

[quote

Over the last year or so - Android's updates have outpaced Apple by about 6 times (or more).  Google has little reason to hold back an update (other than to let device manufacturers keep up to the rapid pace).  Google intruduced ver. 1.5 (Cupcake) just over a year ago (end April/09).  Since then they have had 3 updated versions: 1.6 (Donut), 2.0/2.1

 

The discussion of Apple (or Google) vs Microsoft in the boxing rink is valid in the  personal computing space only.

 

What is not being discussed is in the next rink over where Microsoft is up against ERP's et al in biz computing. Now we know this is very high $takes game. If you follow that bout, ask around to see who is getting their money's worth out of SAP, Oracle et al. A company president I worked with wanted to literally choke our ERP vendor for putting a gun to his head with an ERP upgrade ransom. The upgrade cost our company $2M, and there was no budget for it, let alone any cock&bull ROI projection. As with other ERP upgrades, the glitches that came with it caused untold misery to the biz......sound familiar?

 

The same trends like the miniaturization of the desk/laptop to it's eventual replacement with dumb terminals(supposedly a MSFT killer) can't be a comforting thought for the big boys of ERP. Arguably when this comes to fruition, MSFT stands to gain a lot because many users (virtually everyone in my circles ) over the past 10-20 years have been using their ERP as nothing more than a dumb data depository and much of the daily work/analysis/reporting is done in the MS-Office environment (Excel mainly) after the data is queried out. It is said that the corporate financial world will be the last ones to move away from Excel for their day-to-day work because fo the amount of data sitting in Excels plus the comfort of working in a familiar environment, for what appears to be a very long time. Virually all management reporting is done in Excel. If this is not a moat for MSFT, someone show me a deeper one.

 

I do agree, MSFT is not the force it was in the 80's and 90's, have their work cut out to compete but they are hardly a pushover over the next decade. They are not about to rollover and die which some here appear to assume.

 

 

 

[bargainman]

Yes, customers love when the extremely pricey equipment they bought 2 years ago is no longer supported. Good plan.....oh, wait......

 

Well Microsoft customers like the extremely pricey software they bought from Microsoft 5-10 years ago, but have no incentive to upgrade and thus send more money Microsoft's way.  Microsoft hasn't put out a desktop product in 10 years that presents a compelling upgrade, so they are missing out on those potential revenues.  They try to force people to upgrade via licensing and lawsuits and such but the new products simply aren't better so everyone drags their feet in upgrading.

 

I have a copy of XP that I bought 5-6 years ago which, despite not being Vista (or perhaps because it is not Vista) suits my needs fine.  Even if they do "fix" Vista I have absolutely no reason to upgrade.  My Microsoft Office suite is from 2001.  I might use these for another 10 years.

 

Compare that to seemingly disposable hardware and software sold by Apple such that everyone upgrades every 2-3 years.  Google has a different revenue model but as long as they remain current/relevant they'll continue to derive ad revenue from their products.

 

tiddman. See here:

 

http://www.sec.gov/Archives/edgar/data/789019/000119312510090116/d10q.htm

 

"Windows Division revenue growth is directly impacted by growth of PC purchases from original equipment manufacturers (“OEMs”) that pre-install versions of Windows operating systems because the OEM channel accounts for approximately 80% of total Windows Division revenue. The remaining approximately 20% of Windows Division revenue (“other revenue”) is generated by commercial and retail sales of Windows and online advertising from Windows Live."

 

They don't care if you upgrade the software. Most of their sales for windows come from new machines.  My guess is that's also the case for Office.  MSFT is pretty much becoming an enterprise company, they just keep trying to be a consumer company and keep failing.

 

 

[rmitz]

I'm not sure why I keep involving myself in this conversation, because I really don't have a clue here, but considering the demographics, there are a lot of people retiring that are almost certain never to consider anything but Microsoft.  Struggling to learn a new OS I don't think is an option for most people 55 and up.  They didn't grow up with computers and don't care to understand them beyond what they already know.  I'm not saying it's really that hard to switch, but the perception is that it is hard.  I suppose my point is that I don't see Microsoft's revenue going away anytime soon.

 

Your point works both ways.  Younger people (who are becoming the decision makers) are going to be more open to non-microsoft operating systems in the enterprise as well.  Office is a tougher nut, but it's still possible.

[DCG]

Blamer needs to stop speaking in public. He comes off like a low-level executive that often does not know what he's talking about. Rather than working to improve his company's image by focusing on innovation, he really seems like he's focused on talking trash about companies that are blowing past Microsoft. IMO, he's embarrasing himself and Microsoft. I understand the desire to defend acquisitions made about Microsoft, but he just does it in a very untactful way.

[beerbaron]

Here is another aspect of the game I did not anticipate. Open software providers are starting to bring governments into courts for choosing Microsoft without studying other offers...

 

http://www.allvoices.com/s/event-5986566/aHR0cDovL3d3dy5jYmMuY2EvbW9uZXkvc3RvcnkvMjAxMC8wNi8wMy9xdWViZWMtbWljcm9zb2Z0LWxhd3N1aXQuaHRtbD9yZWY9cnNz

 

BeerBaron

[opihiman2]

My first contribution to the board!  I believe MSFT is better as a trading vehicle than a long term buy and hold.  It hasn't seen 400 billion market cap since 2000, and at that time, it was heavily overvalued.  In 10 years, they've added nearly $10 billion in cash and marketable securities.  They have also maintained positive double digit EPS growth.  The market capitalization has been cut in half.  They have also finally turned the money losing XBox franchise around--although, I don't agree it's the DOMINANT force in gaming (I also believe Project Natal to be another gimmick that most gamers don't want).  They are heavily involved in the enterprise.  The .NET framework is a clear competitor to J2EE and has won over large contracts.  SQL Server is still the third most widely used RDBMS.  Microsoft's development tools and MFC libraries are still widely used.  Although, with all the positives, there are still clear headwinds: Linux, open source software, Sony, Apple, and piracy.  No one knows how technology will evolve and who will dominate.  If someone told me Apple would dominate MSFT's market cap 10 years ago, I would have laughed them off.  Wow, look who is laughing now!  And no one thought IBM would ever have the resurgence as they did since the late 80's.  But, now they are back as the dominant vendor in the enterprise and they are constantly remaking their image: what was once known for their hardware platforms, they have transformed into a services organization and now a software based one.  It is hard to value MSFT.  It has definitely lost its major growth engines.  But, who knows.  In 10 years from now, they could have the next hottest thing ala Apple, or they could be a has been in a commoditized space like Intel.  I say it's better to buy MSFT at mid to low 20's, sell at upper 20's to low 30's.  Repeat ad nausea.

[Guest valueInv]

A couple of relevant datapoints:

 

http://www.businessinsider.com/chart-of-the-day-operating-income-apple-microsoft-2010-6

 

http://www.businessinsider.com/chart-of-the-day-pcs-market-share-microsoft-vs-the-rest-2010-6

[roundball100]

Here is another aspect of the game I did not anticipate. Open software providers are starting to bring governments into courts for choosing Microsoft without studying other offers...

 

http://www.allvoices.com/s/event-5986566/aHR0cDovL3d3dy5jYmMuY2EvbW9uZXkvc3RvcnkvMjAxMC8wNi8wMy9xdWViZWMtbWljcm9zb2Z0LWxhd3N1aXQuaHRtbD9yZWY9cnNz

 

BeerBaron

 

BeerBaron - that seems more like a tactical error on behalf of the local government, and a government-specific issue, rather than anything equal in weight to bigger issues.  IMHO.

[beerbaron]

A couple of relevant datapoints:

 

http://www.businessinsider.com/chart-of-the-day-operating-income-apple-microsoft-2010-6

 

http://www.businessinsider.com/chart-of-the-day-pcs-market-share-microsoft-vs-the-rest-2010-6

 

I love the nice exponential curve of Apple, most market projectors must be really excited to put the exponent in their calculator and imagine buying their retirement.

 

In my opinion,

Apple is pure growth stock

Microsoft is pure Value stock

 

BeerBaron - that seems more like a tactical error on behalf of the local government, and a government-specific issue, rather than anything equal in weight to bigger issues.  IMHO.

 

I agree it's not a game killer, but if you think about it... the monopoly moat in all public service areas gets destroyed if they can't prove they did due diligence in evaluating other software. This would not stop me from buying the stock if I were buying but it's a fine example of something completely out of the blue that could hit you, you better keep a look all around your portfolio for bullets...

 

BeerBaron