MSFT

[ERICOPOLY]

In FY10, desktops made 24% of dell sales and mobile products 31%. 20% of sales are to the consumer in DELL.

 

HPQ is more diversified with personal systems making up 32% of revenue.

 

Right, but revenue alone doesn't tell the story clearly.  Those are low margin revenues.

 

HPQ made only 16.7% of their operating profits from personal systems group in Q1 FY11.  I believe they could make $0 operating profit from that group and they'd still be trading at single digit forward P/E.  And you don't have to play "back out the net cash" games because they don't have any.

[shalab]

Although 25% of Microsoft sales come windows/windows live, it makes up 50% of operating earnings. Thus a small decline in windows/windows live profitability will hit the bottom line hard.

 

In the three months ended on March 31st, the windows/windows live revenues declined by 4% while operating earnings declined by 10%. This means increasing cost pressures while market share is declining. This is even before the new pay hike goes into effect. So look for some of the same trends to continue.

[ERICOPOLY]

Although 25% of Microsoft sales come windows/windows live, it makes up 50% of operating earnings. Thus a small decline in windows/windows live profitability will hit the bottom line hard.

 

In the three months ended on March 31st, the windows/windows live revenues declined by 4% while operating earnings declined by 10%. This means increasing cost pressures while market share is declining. This is even before the new pay hike goes into effect. So look for some of the same trends to continue.

 

I believe one of their chief competitive disadvantages at the moment is the laptop battery life issue, and lack of a tablet offering (which isn't really a viable product without advertising a 10 hr battery life).

 

I spent some time today investigating a purchase of a new Windows 7 based laptop to replace my current Vista laptop.  I decided to hold off until battery life gets better, and that's just around the corner.  Battery life has been my chief complaint with Windows laptops -- it also gets old to have this hot laptop resting on you:

 

http://www.anandtech.com/show/4313/intel-announces-first-22nm-3d-trigate-transistors-shipping-in-2h-2011  

 

Windows 8 will also have ARM support -- a guarantee that they can then actually have a viable tablet offering, as you can't sell tablets without suitable battery life.

 

Where would the iPad be today without low power chips?

[Guest VAL9000]

Although 25% of Microsoft sales come windows/windows live, it makes up 50% of operating earnings. Thus a small decline in windows/windows live profitability will hit the bottom line hard.

Not exactly..  The numbers just look like that on the surface because some divisions have losses.  Otherwise, you would also conclude that the business division makes up 55% of profitability..  50% + 55% = 105% of profits?  The real number is closer to 36%

 

The bleeding investments in search, skype and other areas are done to protect the windows franchise.

I don't see the connection between investment in search and Skype to Windows.  Could you explain this?

 

If you think of Microsoft as primarily the "windows" business, Dell is key for this business. You can't be long on MSFT by being short on Dell. It is growing quite nicely in emerging markets but it doesnt have  the "build to order" thing going on for it like it had in the U.S.

I will dispute this one, too.  DELL and HPQ and all other PC manufacturers are in a commoditized business.  They are commoditized because of Windows.  The whole genius of Windows is that it gives a common platform where hardware and software meet.  The result is that while DELL and HPQ beat each other up to be lowest cost provider of PC's, Microsoft wins either way.  In fact, Microsoft wins even more.  If HPQ and DELL collectively bring down the price of PCs then more people will buy them.  Windows volume goes up, prices don't budge, and the variable cost is almost zero.  Pure profit.

 

There's even a relevant alternative case to examine: Apple.  Software and hardware are tied together, and even with Apple's huge volume and low R&D costs, they still can't produce a computer that is less expensive than a Windows machine.  You could argue that they don't want to and I think I'd accept that answer, but if they don't they'll never be king.

 

China's PC penetration is 20%.  BRIC aggregate penetration is something like 30%.  US and Japan...  90%.  Apple machines are toys for the rich.  There is no realistic case for Apple capturing a large chunk of this new market of PC buyers.  A $300 differential is huge for the vast majority of BRIC citizens.

 

[ERICOPOLY]

Eric, those are really cool ideas :)  I think Groove was moving in that arena (more for collaboration), so much of the tech exists.

 

DropBox is a startup that does a similar thing with respect to files.  This could be another MSFT acquisition in the future.

 

These services would almost certainly have to be freemium.  Free for the first 25gb, pay for the next 100gb or something to that effect.

 

I might also argue that the idea of local files could just go away, or become secondary to the idea of cloud-based storage.

 

Speculation regarding SkyDrive and LiveMesh integration in Windows 8:

http://www.windows7news.com/2011/04/04/windows-8-integrate-live-mesh-skydrive/

 

Those are the current Windows Live services that allow you to store files up in "the cloud".

 

Note that Chris Jones is now Senior VP of the Windows Live group:

http://www.microsoft.com/presspass/exec/cjones/default.aspx

 

He was responsible for the IE4 effort and was then VP in Windows -- responsible for the UI side of things.

 

So isn't it a bit of a no-brainer that he would be the man to lead the Windows Live integration?

 

Just log into Windows 8 using your Windows Live account -- your files and settings are always with you.

 

You then don't need these laptops with massive storage.  Go with a smaller & much faster solid-state drive and put your digital photos on the internet drive.

 

[ERICOPOLY]

But the gap is closing.

 

Samsung Series 9 only weighs 1/2 pound more than MacBook Air, but has larger screen (or if you go with the one of the same screen size, they actually weigh the same!):

 

http://www.samsung.com/us/computer/laptops/NP900X3A-A03US-features

 

It also reportedly boots 3 seconds faster too (yes, faster than the Apple product):

 

 

Now we just need to get those lower power chips in there.

 

The Samsung product also shuts down completely (no power use at all) when in "sleep mode" -- saves state to the solid state drive.  Then it only takes 3 seconds to power on and restore the state:

 

 

 

[DCG]

 

There's even a relevant alternative case to examine: Apple.  Software and hardware are tied together, and even with Apple's huge volume and low R&D costs, they still can't produce a computer that is less expensive than a Windows machine.  You could argue that they don't want to and I think I'd accept that answer, but if they don't they'll never be king.

 

China's PC penetration is 20%.  BRIC aggregate penetration is something like 30%.  US and Japan...  90%.  Apple machines are toys for the rich.  There is no realistic case for Apple capturing a large chunk of this new market of PC buyers.  A $300 differential is huge for the vast majority of BRIC citizens.

 

 

Of course Apple could produce computers cheaper than Windows if they wanted to (and scaled back on the hardware and software included). Why would they want to? Their entire brand is built on quality. BMW could easily product a car to sell for less than Kia's but that make just as much sense as it would for Apple to sell cheap computers. PC's are commodities that all contain the Windows operating system. There is little that differentiates a Dell from a HP computer (with the same specs).

 

And calling Apple  machines 'toys for the rich' is just silly. I'm not rich, and have never owned a non-Apple computer (of course I've used Windows at work - not at my choice). I've also ran 2 small businesses completely on Macs', almost completley without using a single Microsoft product (I've used Office for Mac in the past, but now mainly use Google Docs).

[ERICOPOLY]

And calling Apple  machines 'toys for the rich' is just silly.

 

MacBook price point is about $1 a day (buying a new one every 3-4 years).

[Guest VAL9000]

Of course Apple could produce computers cheaper than Windows if they wanted to (and scaled back on the hardware and software included). Why would they want to? Their entire brand is built on quality. BMW could easily product a car to sell for less than Kia's but that make just as much sense as it would for Apple to sell cheap computers. PC's are commodities that all contain the Windows operating system. There is little that differentiates a Dell from a HP computer (with the same specs).

 

And calling Apple  machines 'toys for the rich' is just silly. I'm not rich, and have never owned a non-Apple computer (of course I've used Windows at work - not at my choice). I've also ran 2 small businesses completely on Macs', almost completley without using a single Microsoft product (I've used Office for Mac in the past, but now mainly use Google Docs).

The point I'm making here is that when it comes to worldwide computer adoption, computer buyers in developing countries will be even more motivated to purchase Windows machines vs. Macs because of the sizable cost differential.  The brand argument is valid, which is why I included the proviso accepting the idea that they don't want to.  I believe it.  Maintaining high price / low penetration avoids all kinds of problems (including viruses and security threats).

 

On this basis of comparison, you are rich.  You live so comfortably in North America (I assume?) that you can spend free time and capital investing.  Just guessing, I'd say that puts you in the top 10% - 1% of worldwide wealth measurements, and therefore you can afford to buy Mac.  Using Eric's analogy, a $100/year differential on the cost of a computer is a deal breaker in a country where the average annual salary is < $5,000 USD (China).

 

[Guest VAL9000]

DCG, I mean this in good fun, but I found it funny that you compared Apple's brand to BMW's and then said that Apple isn't a toy for the rich. The juxtaposition was amusing is all.  I get the point you are making, no harm meant  :D 

[S2S]

^ That's also precisely why an overwhelming majority of software (OS included) installed on Chinese computers are pirated. With a ~35% internet penetration rate, the "opportunity" is there, but perceiving it as easy, or "pure profit", in anyway is too simplistic.

 

There's even a relevant alternative case to examine: Apple.  Software and hardware are tied together, and even with Apple's huge volume and low R&D costs, they still can't produce a computer that is less expensive than a Windows machine.  You could argue that they don't want to and I think I'd accept that answer, but if they don't they'll never be king.

 

They did. This computer is called the iPad; the $499 entry price caught everyone, global manufacturing powerhouses such as Samsung included, by surprise. Don't underestimate what a $30 billion cash reserve and the ability to lock down global supply of parts (capacitive touch screen for example) can do for you.

[Guest VAL9000]

^ That's also precisely why an overwhelming majority of software (OS included) installed on Chinese computers are pirated. With a ~35% internet penetration rate, the "opportunity" is there, but perceiving it as easy, or "pure profit", in anyway is too simplistic.

Explain to me the economics here.  I'm going to continue to pirate software until I save up enough to buy a Mac, where there's no software to pirate?  Where is the loss scenario for PC and Windows penetration vs. any competitor?

 

Sure, it's not simple, but even all the Microsoft haters out there have to admit that the incremental profit margin on each copy of Windows sold approaches 100%.  Software piracy is a result of opportunity meeting need.  As Microsoft cuts down on the opportunities, and developing countries increase the need, the incidence of software piracy will continue to drop.

 

They did. This computer is called the iPad; the $499 entry price caught everyone, global manufacturing powerhouses such as Samsung included, by surprise. Don't underestimate what a $30 billion cash reserve and the ability to lock down global supply of parts (capacitive touch screen for example) can do for you.

$499 is still more than what you can buy a laptop for, even with genuine Windows installed ($280 on bestbuy.com).  So, no, they didn't.  And this doesn't account for the opportunity cost in software.  That is, productivity isn't viable on an iPad.  It's primarily an entertainment device - browsing, music, movies, games.  I typed a post up on one a while back and it took me 3x as long as on my desktop.  This is a big deal when you're as long-winded as I am :P

 

[DCG]

DCG, I mean this in good fun, but I found it funny that you compared Apple's brand to BMW's and then said that Apple isn't a toy for the rich. The juxtaposition was amusing is all.  I get the point you are making, no harm meant  :D  

 

ha...my point was more if it being much more than I toy (and BMW's are much more than toys as well), but yeah.

[DCG]

Of course Apple could produce computers cheaper than Windows if they wanted to (and scaled back on the hardware and software included). Why would they want to? Their entire brand is built on quality. BMW could easily product a car to sell for less than Kia's but that make just as much sense as it would for Apple to sell cheap computers. PC's are commodities that all contain the Windows operating system. There is little that differentiates a Dell from a HP computer (with the same specs).

 

And calling Apple  machines 'toys for the rich' is just silly. I'm not rich, and have never owned a non-Apple computer (of course I've used Windows at work - not at my choice). I've also ran 2 small businesses completely on Macs', almost completley without using a single Microsoft product (I've used Office for Mac in the past, but now mainly use Google Docs).

The point I'm making here is that when it comes to worldwide computer adoption, computer buyers in developing countries will be even more motivated to purchase Windows machines vs. Macs because of the sizable cost differential.  The brand argument is valid, which is why I included the proviso accepting the idea that they don't want to.  I believe it.  Maintaining high price / low penetration avoids all kinds of problems (including viruses and security threats).

 

On this basis of comparison, you are rich.  You live so comfortably in North America (I assume?) that you can spend free time and capital investing.  Just guessing, I'd say that puts you in the top 10% - 1% of worldwide wealth measurements, and therefore you can afford to buy Mac.  Using Eric's analogy, a $100/year differential on the cost of a computer is a deal breaker in a country where the average annual salary is < $5,000 USD (China).

 

 

Gotcha. No argument that Apple won't develop any significant market share in developing countries, but I might be able to argue that computers running Google's Chrome OS could potentially be a better option than MSFT computers in developing countries, but that's a different argument.

[S2S]

VAL9000,

 

My point is that studying what happened in the past can provide you with an useful guideline, but it might be a mistake to project the exact same scenario to repeat in the future. MSFT's incremental profit per PC user might have been $10*X for the last 20 years in the US, but in China the same metric would be more like $X. Surely there is room for upside (ie. crackdown on piracy... which will happen much gradually than you might think; once people are used to getting something for free, good luck with making them pay for it), but there is room for downside as well (the emerging Google Chrome/Doc platform offer a cheap and sometime free alternative). Apple, on the other hand, has a bigger say on much it gets paid on every incremental unit.

 

The same point applies to Apple as well. That they have made it big dominating certain niches does not necessarily rule them out from competing for the mass market in the future, especially now that scale is finally on their side.

[ERICOPOLY]

Post consent decree, I wonder if they can now have native anti-virus software built into Windows.

 

It is extremely odd that it isn't a critical part of the OS -- it is, after all, security.

 

[Guest VAL9000]

Gotcha. No argument that Apple won't develop any significant market share in developing countries, but I might be able to argue that computers running Google's Chrome OS could potentially be a better option than MSFT computers in developing countries, but that's a different argument.

 

I think on that one we can agree :)  The platform shift from local computing to cloud computing (or "the internet") is where I think the most significant competitive threat to MSFT lies.  ChomeBook, iPad, Android, Mac, etc. are all worthy competitors when the brains of the operation are centralized and abstracted.

 

In developed countries, I think Apple will continue to gain market share for a long while.  I could see them anywhere between 10% and 30% of the core PC market..  After reaching that level of penetration they'll start to run into the same problems MSFT faces today in terms of security and reliability, and new issues that they don't face - namely scalability.

 

[Guest VAL9000]

My point is that studying what happened in the past can provide you with an useful guideline, but it might be a mistake to project the exact same scenario to repeat in the future. MSFT's incremental profit per PC user might have been $10*X for the last 20 years in the US, but in China the same metric would be more like $X. Surely there is room for upside (ie. crackdown on piracy... which will happen much gradually than you might think; once people are used to getting something for free, good luck with making them pay for it), but there is room for downside as well (the emerging Google Chrome/Doc platform offer a cheap and sometime free alternative). Apple, on the other hand, has a bigger say on much it gets paid on every incremental unit.

I think that's fair.  The incremental profit margin wouldn't move much, but the price per unit would.  I'm cool with that theory.  I'm less cool with the idea that people won't move towards paying for something that they've gotten for free.  This goes back to opportunity and need...  pirates gonna pirate, but more and more people will pay because the price of pirating (effort, security, etc.) exceeds the benefit (save $80 or whatever it is).  This erodes my Apple argument a little with respect to price, but assuming $80 is the cost then that laptop is really $200 not $280.  The internet is full of examples where we've gone from free to pay (free shipping, free youtube, free music).

 

Apple definitely dictates price on every unit, but the price dictates the number of units..  so really they set the size of their market, assuming we believe that they can sustainably price below a PC (which I don't believe but that's irrelevant).

 

[ERICOPOLY]

HPQ getting pounded after hours.

[prunes]

Microsoft Corp. said it will further tailor its Bing search results with data gleaned from users of Facebook Inc., as Microsoft and the social network deepen their ties.

 

Beginning Monday night, people who conduct searches on Bing will see results that are influenced by the "likes" of people within a searcher's Facebook network. Those likes—endorsements that are increasingly popular on the social network—can highlight everything from news stories to bands to movies. Those and other new features are part of a partnership Microsoft inked with Facebook in October, which was slated to help make Bing results smarter.

 

In an interview, Lisa Gurry, a director of Bing at Microsoft, said the Facebook data Bing is tapping into to improve its results isn't accessible to Microsoft rival Google Inc. because of the exclusivity of the relationship between Facebook and Bing.

 

"We view this as a competitive advantage over Google," Ms. Gurry said. "They can't have the same partnership with Facebook."

 

The Redmond, Wash., company said it will seek to improve travel-related searches by displaying Facebook friends on Bing who live in a city for which a Bing user has just searched. Bing users will be able to also seek input from Facebook friends on shopping decisions by sharing lists of cars, computers and other products they're considering buying.

 

http://online.wsj.com/article/SB10001424052748703421204576327600877796140.html#ixzz1MYSDiM5a

 

[goldfinger]

HPQ getting pounded after hours.

 

Is HPQ in runoff too?  ;D

[Myth465]

HPQ getting pounded after hours.

 

Is HPQ in runoff too?  ;D

 

So many funny things about this quote and post. So many....

[goldfinger]

So many funny things about this quote and post. So many....

 

That's basically where it is priced at the moment.

[sswan11]

John Paulson buys 25 million shares of HPQ:

 

http://www.businessweek.com/news/2011-05-17/paulson-takes-1-billion-hewlett-packard-stake-adds-to-gold-bet.html

 

Paulson bought 25 million shares in Hewlett-Packard, valued at about $1 billion, according to a regulatory filing yesterday.

[TorontoRaptorsFan]

Bruce Berkowitz has initiated a position in Cisco acquiring over 35 million shares.