Wednesday, May 11, 2011

Is this the end of MSFT?

This is the first time I am posting on a company not listed in India. I am talking about Microsoft. This post is inspired by Microsoft's buyout of Skype for $8.5 billions. Many of the big companies that are favourite of speculators get to a point where their dominance is threatened by creative destruction that is the core of capitalism. Microsoft has dominated tech industry for more than thirty years now. But over the last ten years, the growth of internet has just shaken the ground below this bellwether company. The company has meager presence in this area and is struggling to build products that make its presence felt on internet. The last time the company was this desperate was in 1997-98 which resulted into buyout of Hotmail at exorbitant price of $400 million in January 1998. I don't have the data for the revenue and profitability of this acquisition over the last fourteen years, but Microsoft share price did get a boost from $15 to $25 in a span of just eight months. The price today is still hovering at $25 and change after almost thirteen years.

Even the current internet division in Microsoft is bleeding with heavy losses with annualized loss number to the tune of $3B(billions with a B). The PC sales declined annualized 4% in the last quarter although the notebook sales increased and with the prevalence of virtual machines, operating system sales may not match one-to-one with hardware sales since many virtual machines can run on a single hardware server.

I am working in technology sector and not in Microsoft so my opinion may be biased. So take this with a pinch of salt. There is a famous call from Bill Gates on Kodak in 1991 when its share price was hovering around $30. When asked about Kodak, Bill Gates said, "Kodak is toast". The share price did go up to $90 and today going for $2 and change. Will he say the same thing for Microsoft today?
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Anonymous said...

Am sure you would love this post on similar topic

Anonymous said...

Everyone know that, Microsoft is a good and quality company. It will provide only quality product. I love this block.
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