Microsoft under Attack

Well, Microsoft finds itself in a box with competitors nipping at it from all sides. They're like a heavyweight boxer with a huge punch, and your not sure when they will explode. That huge punch is the awesome amount of cash they have in reserve that they can throw in any direction to stay on top as the premier software manufacturer in the world. According to their FY11 Q1 statement they have a total stockholder equity of about $47 Million with about $8 Million of that in cash. How would you like to have $8M sitting around to do with whatever you want?The latest do is that Microsoft is acquiring Skype. Skype is a leading provider of internet communication streaming technology. They provide internet communications for video, messaging, and voice with some 170M connected users who log over 207B minutes a year over the Internet.

With Microsoft's move into the cloud computing, this seems like a smart move on their part, and will enhance Microsoft's cloud products. This should help their Lync enterprise instant messaging, which has experienced a 30% growth in revenue over last year.

One of Microsoft's games seems to be to expand their office offering to instantly communicate with anyone else in a company, with video, messaging, and voice over the Internet. They will have cloud computing office applications, so that anyone will be able to get to their work from anywhere in the world, and instantly communicate with their colleagues. Ah yes, let's sailboat around the world with a Netbook.

Microsoft revenue stars lately has been their Office products and their Xbox 360 with their motion sensor technology. The big loser has been their Windows 7 offering, because of the sudden surge in tablet sales, and a corresponding falling off of PC sales. Intel announced this week that PC sales would not be as strong as expected next year. Netbook sales are also off as tablet sales increase.

Bear in mind that 39.7% of Windows user are still running XP, while 37.8% have moved to Windows 7. Microsoft's latest strategy has their new Internet Explorer 9 browser not running on XP, to boost Windows 7 sales. And there is a gradual move toward Windows 7, maybe because of this, with a corresponding decline in XP.

The tablet market does not use the Microsoft operating system. Tablet computers are based either on Apple's iPad IOS4.3 operating system, or the Android operating system. Both of these are Linux based operating system. So every tablet sale is one less PC sale, and one less sale for Microsoft's Windows 7 operating system.

Apple iPad

As to tablets, Apple nearly tripled its iPad sales from the same quarter a year ago. Apple, initially, had complete dominance in the tablet market, now Android is coming on strong, and making major in roads. A year ago, Apple had 94% of the market, now they only own 61%. The beauty of Android is that you're not locked into the product's manufacturer, like you are with Apple and Microsoft.

Android Samsung Galaxy

Windows is also under attack from both Apple and Linux for the PC operating system space with each gaining gradually in their market share. Let's not get too excited yet, according to W3Schools stats, Microsoft still owns about 86% of the market, Apple about 8.1%, and Linux about 5.2%. The point is the numbers for Apple and Linux are gradually increasing, while Microsoft's are declining.

The rest of the market is owned by mobile technology. According to the Gartner Group, Microsoft is a big loser in this market, even though they have a mobile solution, no one's using it. They occupy a measly 3.6% of the market and declining. The rest of the market is Symbian, 27.4%, and the Rim, 21.9%, operating systems declining rapidly; Apple's iPad and iPhone are steady at 16.8%; while the Android market is at 36% and rising rapidly. This market is starting to emerge, both the mobile and tablet market now account for 8% of Internet browsing in the US.

Despite the lagging Windows sales, Microsoft had a good quarter and beat estimates. They posted a profit of $5.87B up from $4.52B in the previous quarter a year ago. This came from Office sales and XBox sales, and an unusually low tax rate of 7%, which cut its taxes over $1B from the previous quarter a year ago. The tax break was from an increase in sales done through its offices outside the US.

As an aside, wake up Congress and start giving these corporations some tax breaks to stay in country. It's better to have some revenue, than none at all.

Given that most of Microsoft profits came from the tax breaks gotten from overseas sales, one has to look at Microsoft as a giant who is struggling to find areas to increase their revenue. One of Microsoft's bets is that the acquisition of Skype will increase their revenue by giving them new products to add to their Office portfolio.

One has to wonder if the ultimate computing product that everyone will want is an Android-based, eReader, Internet browsing, color, touch-sensitive, visible-in-sunlight tablet. If that's the case, Microsoft may end up like IBM, a has-been that has passed its prime.

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