Microsoft Corporation (MSFT, Financial) announced its quarter result early this week and the report card indicates that the company has been facing a lot of headwinds in B2B and B2C consumer segment. The PC sales have slowed down after a sudden spike last year which was primarily infused by Microsoft’s decision to end of support for XP. Microsoft saw a sharp decline of 13% in the revenues generated through the sale of Windows operating system licence to PC and tablet manufacturers. The corporate technology sales also showed slower than expected growth. The strengthening U.S. dollar is eroding away a major chunk of its international revenues.
Amid unfavorable news pouring in from all corners, the company introduced Satya Nadela as its new CEO into the system with a hope to recover the lost ground and also to regain investor confidence. He did manage to regain some ground for Microsoft by making investors believe in his remodelling of the company as a leader in cloud and mobile computing. But it looks like his charm is slowly fading away. Analysts are sceptical of the company’s capability to successfully transit from installed licence software to cloud based applications.
Market scenario
The monopoly that Microsoft once enjoyed over PC market through its Windows operating system is being challenged by Google Inc. (GOOG, Financial) through its Android operating system. After successfully capturing a mammoth share in mobile segment Google is making a slow inroad in to the PC and laptop sphere. This new challenger has made Microsoft even more edgy. China and other growing Asian economies which were once a stronghold have also spelled more trouble for the company as Apple products, both PC’s and mobile phones which were earlier considered to be too premium and out of reach for many in this subcontinent is now becoming affordable and must have. Microsoft has cut prices for Windows and Xbox products to try to arrest the progressive competition. This move is considered as a long term strategy.
Stock talk
Microsoft shares are trading in the band of $40 to $45. The share was trading 30% higher last year. Microsoft witnessed such levels of appreciation in its stock prices after nearly 15 years. The net income has fallen in the last 3 months of 2014 and the company is wrestling with stiff competition. Microsoft reported a net income of $5.86 billion during its fiscal second quarter ending on Dec. 31, 2014 whereas the figure stood at $6.56 billion a year back. This is a drop of 7 cents a share. In accordance with analyst expectations, the revenue figure for this period stood at $26.47 Billion which is an 8% rise from previous year’s $24.52 billion. The company announced that the revenues will continue to be sluggish over the next two quarters.
All is not completely lost for Microsoft Corporation. Microsoft’s high bets on Nokia (NOK, Financial) Lumia phone series is finally reaping results as the sales numbers are increasing and the brand has registered a 28% rise. Its surface tablet sales hit $1.1 billion mark during the same quarter, which is a leap of 24% and encouraging news for the investors. Microsoft also generated $1.3 billion revenue through its Cloud business in the quarter ended Dec. 31.
With the recent launch of Windows 10 the company hopes to connect the missing dots towards a stable and sustained market share. Windows 10 works on a unified code module helping developers write identical programmes for PC’s, tablets and phones. If Microsoft is successful in attracting programmers to generate unified codes which can be easily customised and tweaked for PCs and handheld devices then it will definitely be a cause of concern for its rivals.
To conclude
In the face of the ups and downs, Microsoft’s arch rival Apple’s (AAPL, Financial) has announced $18 billion profit, it is yet another jolt to Microsoft and its investors who would be feeling the pinch real hard. Investors looking to create new position can wait and watch for some time until Microsoft finds some stability. Those currently holding positions can drop the stock from their portfolio.
