Microsoft(MSFT) shares tumbled to $17.30 today after the tech giant reported weaker than expected earnings. Microsoft earned 47 cents per share vs. the 49 cents per share expected by Wall Street. Earned revenue came in at 16.6 billion which missed estimates of 17.1 billion. Microsoft failed to deliver up to analysts expectations. This begs the question, Where has the growth at Microsoft gone?
This week’s earnings announcements demonstrates the issues that Microsoft is facing. Microsoft’s PC software sales numbers were down sharply for the quarter. Microsoft blamed the lackluster sales on PC market weakness.This conflicts with what is happening at Apple. Apple(AAPL) crushed its earnings expectations and experienced 9% growth in iMac sales. While Windows is still the most popular operating system, the failure of Windows Vista has only helped to bolster Apple. Microsoft seems as if its becoming more like IBM with increasing sales from its business divisions and decreasing sales from PC divisions. Apple is rapidly becoming the new Microsoft.
Over the past decade Microsoft has seen its stock decline 54%. I have owned Microsoft stock for years and the stock trades like a savings bond. The stock has had very little capital appreciation and a low dividend yield. For years, I have waited while product after product is trumpeted as the next big earnings driver for Microsoft. From the Zune to Windows ME to Tablet PC’s, Microsoft has struggled to regain its technological edge. Meanwhile Apple has seen its stock increase 800% over the past decade. Apple has developed innovative products including the iphone, ipod and imac.
Microsoft may have to look to build upon its online search division and entertainment division for growth in the future. Microsoft’s search and advertising revenues were up slightly. If Microsoft does a deal with Yahoo, the combined companies would have a stronger presence in the online search market. Also, Microsoft’s entertainment division had positive sales growth the past quarter. Video games have appeared to be recession resistant so far. The next generation XBOX’s hardware and software sales could contribute significantly to the bottom line.
Microsoft is still a cash cow and could reinvent themselves with a major acquisition or a new product launch. Hopefully Windows 7 can be the catalyst to finally ignite earnings growth. Until the company identifies their next great software product,the stock will likely continue to flounder.
The Dow Jones is down 60 points today in morning trading.
