Everyone,Here is a letter that was sent to the BOD. I will be sending one very similar, as well as calling IR.Since I am long (both for 'real' and 'synthetically'), I do care about the long-term value proposition of Microsoft.JoePS - the author, Dan Ferris, is happy to have his letter forwarded. Please feel free to do so.-------------------------Earlier today, I sent the following letter to Microsoft's board of directors... November 2, 2012MSC 123/9999Office of the Corporate SecretaryMicrosoft CorporationOne Microsoft WayRedmond, WA 98052-6399Dear Microsoft Board of Directors,I am writing to you today as a Microsoft shareholder.I never expected to write those words. You see... I'm contractually prohibited from making investments in the equities I recommend to readers of my two monthly investment advisories, one of which I've been writing for more than 10 years.But I recently received permission from my publisher's general counsel to buy one share of Microsoft so I could attend the annual meeting in Bellevue, Washington later this month and address the board as a shareholder. It's my sincere hope that the modest nature of my personal investment won't tarnish your view of my proposal below. If I weren't contractually prohibited from doing so, I would own many more Microsoft shares.I have been very bullish on Microsoft ever since I first researched the company in the summer of 2006. Back then, I circulated an e-mail to my colleagues, showing them that the combination of Microsoft's fortress-like financial condition, its excellent business, and dirt-cheap stock price made it an excellent equity investment at that time. I recommended the stock in my newsletter in October 2006. I continue to communicate my enthusiasm for Microsoft as one of the world's greatest businesses... and at recent prices below $30 a share, one of the safest and highest-quality equity investments available anywhere in the world today. I've pointed out many times Microsoft's highly valuable products, its consistent profitability, high returns on capital, enormous cash generation, excellent dividend-paying history, and financial fortress balance sheet. It's an equity investor's dream come true.I'm particularly excited about the recent release of Windows 8 and the new Surface tablet – Microsoft's first computing device. The negative reviews of Windows 8 appear to be misplaced, though I have yet to try a full version of the new system. My Surface tablet is on order and has yet to arrive. I'm excited about it, because my iPad just doesn't cut it as a productivity device. I need to do real work in programs I rely on every day, like the Microsoft Office productivity suite. The iPad won't let me do that. But the Surface will, and I can't wait to get my hands on it. Bravo to Microsoft's management team for heading the business squarely in the right direction.It's as an enthusiastic supporter of Microsoft's management, a raging Microsoft bull, and a modest owner of Microsoft equity that I write to you today. I'd like to propose an answer to one important question about Microsoft... a question I'd wager is on the minds of many of my fellow shareholders.The basic question is simple: Why is the equity of a wonderful business like Microsoft trading at such a depressed market valuation?I won't claim to know the one and only answer to this question. But I believe my reasoning speaks for itself and that the opinion expressed below is worth the board's consideration. I think Microsoft is cheap because there is a large difference between (A) the huge profits earned by the business in recent years and (B) the value created for shareholders during that time. If Microsoft takes certain actions, shares would no longer be weighed down... and the market would finally – and fully – recognize the enormous value created by this business each and every day.I recognize Microsoft is one of the all-time-great creators of shareholder value. According to data provided by Capital IQ and published on Yahoo Finance, Microsoft's dividend- and split-adjusted share price increased more than 420 times from its IPO on March 13, 1986 through yesterday. Shareholders who bought at the IPO and held until today have compounded their wealth by more than 25% per annum for nearly three decades. Few corporations can say the same.I'm not addressing this phenomenal record, which speaks for itself as one of the great investment performances of the last several decades. I'm concerned solely with the current depressed valuation of the shares versus what I see as a large amount of unrealized shareholder value creation.The unrealized shareholder value creation exists in two forms: the enormous amount of cash and securities Microsoft currently holds... and the enormous amount of excess cash flow Microsoft generates each year.First, let me address the balance sheet...As of September 30 – the most recent data available – Microsoft reports over $66.6 billion in cash, cash equivalents, and short-term investments. This accounts for about 54% of Microsoft's total assets and approximately 97% of its shareholders' equity line.The majority of this cash hoard is held outside the United States. According to the annual 10-K form dated June 30, there's about $60.8 billion held offshore. The deferred tax liability on this amount is approximately $19.4 billion.I realize most shareholders would like Microsoft to pay the lowest possible tax rate, and earning substantial amounts of profit in lower-tax countries helps achieve that end. So many of my fellow shareholders likely view its massive offshore cash holdings with relative indifference. As I hope to demonstrate, paying the lowest possible tax rate is not a suitable focus for a business like Microsoft. On the contrary, I believe a preoccupation with tax rates is detrimental to shareholder value creation.Later in this letter, I'll recommend specific actions Microsoft should take. But my suggestion boils down to this: Microsoft should bring its offshore cash home, pay the U.S. taxes, and distribute the remaining amount to shareholders through dividends and share repurchases.I realize this is a radical proposal. It probably sounds like I'm suggesting Microsoft light $19 billion on fire. I completely understand this viewpoint. But today, I'd like to offer an alternative viewpoint, courtesy of your neighbor, Seattle, Washington-based logistics provider Expeditors International of Washington (Nasdaq: EXPD). Its example is one I believe Microsoft and many other U.S. corporations should at least consider.The comparison of Expeditors to Microsoft might not seem appropriate, but there are important similarities. Both businesses earn substantial portions of their operating income outside the United States. Both specialize in knowledge-based products and services, based on their substantial concentrations of expertise and experience relative to the rest of their industries. Both employ some of the most knowledgeable people in their industries, some of the most valuable executives and employees on the planet. Both have small capital requirements relative to their operating cash flows. Both have excellent, cash-rich balance sheets, consistent profit margins, and consistently large excess cash flows. I believe these common attributes make a comparison of the two companies a worthwhile exercise.Expeditors does business in 60 countries... yet, since 1993, it has pursued a policy of bringing all its foreign earnings home to the U.S., where they become taxable at U.S. tax rates. Contrary to what some might expect, this policy has not prevented Expeditors from creating substantial shareholder value. According to data provided by Capital IQ and published by Yahoo Finance, Expeditors' dividend- and split-adjusted share price has increased by more than 53 times since March 26, 1990, through yesterday. Expeditors shareholders have compounded their money at more than 19% per annum for more than 22 years. That's a truly phenomenal record. Expeditors has rewarded shareholders with 17 consecutive years of dividend increases. Over the last 10 years, its dividend has risen at a rate of more than 25% per annum.The obvious conclusion is correct: Bringing home foreign earnings and paying U.S. tax rates in no way prevents a corporation from creating enormous shareholder value.Expeditors CEO Peter Rose states this case well:We think working to achieve operational excellence is a far more worthwhile goal than trying to establish your own art form of financial and tax engineering. We also believe, rightly or wrongly, that in the long run, the market pays a premium for sound, fundamentally sustainable operating income... the more people get caught up in trying to structure their international organization to benefit from ridiculously low tax rates, the less their corporate strategy is focused on making money through their core operations by servicing their customers... We think it's ridiculous that some companies "mickey" with their tax rates by permanently leaving profits offshore, to the point of having to borrow domestically to fund dividends and domestic operations. That kind of "financial engineering" gaming of the system seems counterproductive to us.Rose's point is clear: Operate the business... Build sustainable income... And don't get distracted by offshore tax rates. Microsoft isn't Expeditors. But Rose's ideas suggest a different – and ultimately more effective – path for corporate boards. Microsoft's success has been enormous, and its cash hoard seems to be creating a proportionate distraction. The distraction could be eliminated if Microsoft embraced sounder principles of creating shareholder value and ceased to "mickey" with its tax rates by leaving foreign-earned profits offshore. I hope you'll give this the consideration it deserves.It also strains credibility to the breaking point that Microsoft has deemed over $60 billion permanently invested offshore. Based on available data, it's likely that's more than all Microsoft's capital spending since its founding in 1975. So I must ask the board another question: Are you certain you can quickly build another Microsoft? Another company with a 90% market share, 76% gross margins, 23% net margins, and a $248 billion market cap? Another 400-bagger for investors?Answering "yes" to these questions would be the only justification for keeping $60 billion in shareholder-owned money sitting in offshore accounts and investments. It's obvious that the only reason Microsoft has deemed this amount permanently invested is to avoid paying U.S. taxes on it. There's no other credible reason anywhere in sight.Also, with all due respect to management and the board, it's unfair to suggest you're preserving shareholder value by keeping any amount of money at arm's length from the U.S. taxman. The taxman is incapable of destroying 100% of the dollars you bring home. I wish I could say the same for Microsoft itself... Microsoft paid $6 billion for digital marketing and service provider aQuantive in 2007. It recently took a $6.2 billion write-down to its Online Services Division (which fails to earn a profit). Microsoft clearly stated the write-down was related to the goodwill from the aQuantive acquisition. In other words, Microsoft made a bad acquisition and lit $6 billion on fire. Shareholder value was destroyed.If Microsoft earns $6 billion selling Surface tablets and pays U.S. corporate tax rates on it, there will be a lot more money left over than the zero from the aQuantive acquisition. Like the shareholders of the overwhelming majority of U.S. corporations, Microsoft shareholders should fear bad capital allocation much more than they fear the taxman. Shareholders should insist businesses bring their foreign-earned profits home, pay their U.S. taxes, and distribute the excess to company owners. Please don't take this as an insult. It isn't. As I've said... I'm a huge Microsoft bull. I have simply learned from experience that capital allocation is a rare skill in the corporate world, even among brilliant business operators like Microsoft. There's no shame in not having this skill, only in failing to recognize its absence.I wish aQuantive were the only example... The $8.5 billion purchase of Luxembourg-based Skype in October 2011 looks suspicious. It looks like Microsoft's foreign-held cash is burning a hole in its pocket. I recently spoke with one of your investor relations representatives about Skype and foreign-held cash. She offered the Skype deal as evidence Microsoft uses offshore money to create shareholder value. I laughed for a second then stopped, as it was a sad commentary on the state of understanding of the fine art of capital allocation up and down the organization at Microsoft. (Again, there's no shame in that, as long as you admit it.)On Skype as a capital-allocation decision... I must paraphrase Cuba Gooding from his role in the film Jerry Maguire: Show us the money! As the largest acquisition in company history, company owners deserve to know exactly how Microsoft will make money with a business its previous owner eBay failed to capitalize on... and how that business is worth more than three times in 2011 what eBay paid for it in 2005. Is it that much closer to producing its first penny of net profit?Fortunately for Microsoft shareholders, it's one of the most profitable, cash-gushing, capital-efficient businesses on the planet. So at least for now, aQuantive and Skype haven't had too big of a negative impact. That's why I remain bullish on Microsoft. Despite its two missteps, it's still a phenomenal business. If it simply changed its capital-allocation policy, it would be a leader both as an operator and as a creator of shareholder value. That's all too rare. Also, owning this wonderful business at this price is an easy decision. Now, if it can just take action that'll help the market realize what we shareholders already know... Another popular excuse for retaining cash is that it'll be used to fund future growth. This sort of thinking is a popular myth, especially among technology companies. In a 2003 paper titled "Surprise! Higher Dividends = Higher Earnings Growth," authors Rob Arnott and Cliff Asness showed that higher dividend-payout ratios were associated with higher earnings growth – the exact opposite of the popular belief. Put another way, companies with poorer earnings growth records tend to retain more of their earnings. Again, corporations and their owners and boards should be more wary of retaining too much cash, not too little.The evidence strongly suggests retaining mountains of cash will never get Microsoft or its shareholders anywhere either wants to be. So let's get real about Microsoft's massive cash hoard. It encourages bad capital-allocation decisions and results in the destruction of shareholder value. The current depressed valuation of the company's equity clearly reflects the market's belief that this destruction will continue.I'm confident the board can easily understand the point I'm making about shareholder value creation. It's emotionally difficult. Microsoft is simply being prideful about U.S. taxes and big acquisitions. Human nature being what it is, pride loves company... Microsoft has the comfort of like-minded large technology companies on its side. Earlier this year, Apple, Cisco, Oracle, and other companies got together to lobby Congress for a tax holiday, claiming this would give them an incentive to bring foreign-held cash home. They claim tax relief would help them "create jobs" and other euphemisms for making capital investments within U.S. borders.This is utter baloney. If corporations know they can get tax holidays, it provides a clear incentive to continue holding money and developing and acquiring new businesses offshore, where profits will be taxed at lower rates... until the next tax holiday comes around (as it did in 2004), allowing corporations to circumvent the standard 35% corporate tax rate. The U.S. government should make it crystal-clear no such holiday will ever be considered again. Taking the tax holiday off the table puts the ball back into corporate America's court, where it belongs. It creates more of an incentive to invest in the U.S. than a tax holiday would. The certainty of a 35% tax isn't nearly as much of an obstruction to shareholder value creation as allowing corporations another excuse to accumulate capital they don't know how to allocate.It's not the government's job to create shareholder value. Nor is it the board's job to play "wait and see" with U.S. taxing authorities. Let's put that responsibility where it belongs. The board works for the shareholder and makes sure value is created. That corporate America's boards and managements frequently have the nerve to sell tax engineering to shareholders as shareholder value preservation – or tax holidays as "job growth" engines – only adds insult to injury. It also provides even more unwanted, unnecessary distractions from the real business at hand.Let Microsoft lead the way in the fight to end all this nonsense. Let's bring the cash home, pay the taxes, and distribute the profits to shareholders via dividends and share repurchases. Let's stop being mesmerized by tax engineering and the fantasy that the government will save us from paying taxes... And let's get back to creating value and running one of the greatest businesses in the world for the benefit of its owners.So ladies and gentlemen of the board, I implore you not to sit waiting to see if and when a tax holiday might arrive. Microsoft didn't wait for the government to tell it to create Windows 7, the best-selling operating system in history. It didn't wait for the government to tell it to revolutionize the Windows platform with Windows 8. It didn't wait for the government to tell it to make Surface, the first Microsoft-manufactured tablet.Likewise, Expeditors' board doesn't wait for the government to tell it what to do with its money. Microsoft shouldn't wait, either. When a public company has excess capital sitting idle on the balance sheet, there is only one solution to the problem: return it to the owners of the company. Given the enormous amount of capital involved (enough equity to capitalize another Microsoft-sized business), it looks like having too much idle capital on hand has become a chronic problem for Microsoft. To this end, I believe Microsoft should take two radical actions immediately: 1) Microsoft should increase the amount of its per-share dividend by at least 50%. 2) Microsoft should bring foreign cash holdings back to the U.S. and immediately undertake a large share repurchase program as long as the stock trades at or below an enterprise value of 15 times free cash flow. At that price, share repurchases would create enormous value for existing shareholders.For the fiscal year ending June 30, Microsoft generated over $29 billion of free cash flow. It paid out $11.4 billion in dividends and share repurchases. During the year, Microsoft's cash and investments balance increased by about $10.6 billion. That's another $10.6 billion in cash, sitting idle.Microsoft paid out $6.4 billion in cash dividends last year. It could have paid out triple that amount. From that perspective, the immediate 50% dividend hike I propose seems a modest initial change, one that should easily meet with board approval.Subsequent changes to ongoing capital allocation policy are necessary to ensure Microsoft shareholders are rewarded in a manner commensurate with the enormous business success its management has created and continues to create. I believe the following policies should be instituted as soon as possible:•Target at least 60% of free cash flows paid out in dividends.•Repurchase shares with available excess cash at a price not to exceed an enterprise value per share of 15 times free cash flow.•Bring all excess foreign-earned cash home to the U.S., for distribution to shareholders via dividends or share repurchases.Taking the above actions makes a higher market valuation for Microsoft shares a virtual certainty. If Microsoft raised its dividend by 50% immediately, and instituted a policy of paying out 60% of its free cash flow as dividends, a 40% rise in the share price wouldn't be an unreasonable expectation. Investors are starved for safe, growing incomes now more than ever, which has pushed up the share price of fellow blue-chip dividend-payers Wal-Mart (NYSE: WMT) and Johnson & Johnson (NYSE: JNJ). Microsoft has already developed a reputation as a good blue-chip dividend-growth stock. A renewed commitment to rewarding shareholders with a much higher dividend should be more than welcomed by many investors.As I write this letter, Microsoft's shares are trading just below $30. A 50% rise in the dividend could easily catapult the share price into the mid-$40s, where it belongs.The S&P 500 trades around 16 times earnings. Microsoft trades around 11 times earnings, adjusted for excess cash. Microsoft is a far better company than most members of the S&P 500. It should trade at a premium to the market, not a discount. The actions I proposed should help correct that discrepancy.Most businesses envy Microsoft's success. Few envy its depressed valuation. I hope you'll address the latter and make Microsoft the envy of every public company in the world.Thank you, ladies and gentlemen of the board, for considering my ideas.Sincerely,Dan FerrisMicrosoft shareholder
Readers digest version <phew> Dan tells MS:"I believe the following policies should be instituted as soon as possible:•Target at least 60% of free cash flows paid out in dividends.•Repurchase shares with available excess cash at a price not to exceed an enterprise value per share of 15 times free cash flow.•Bring all excess foreign-earned cash home to the U.S., for distribution to shareholders via dividends or share repurchases.Taking the above actions makes a higher market valuation for Microsoft shares a virtual certainty. If Microsoft raised its dividend by 50% immediately, and instituted a policy of paying out 60% of its free cash flow as dividends, a 40% rise in the share price wouldn't be an unreasonable expectation. "Not sure how this washes against MS's rainy day worries...so I wouldn't hold my breath for them to jump to these changes - MS is a stubborn slow moving beast for better and worse.B
Like he says, I would rather they pay the 35% tax, vice lose 100% on another STUPID acquisition.Funny how Peter Lynch's 'di-worsification' continues to crop up.Joe
I always wondered what would happen first. Microsoft customers deciding that they produced crappy products, or investors realizing their stock hasn't moved since kids rode dinosaurs to school.Now we know.
One would think that Gates and Ballmer are aligned with shareholder interests given their large ownership. But I sometimes think that this (unintuitively) doesn't work so well when the individuals in question are already super rich. At that point ego, pride, envy, and stubbornness may effectively counterweight capital preservation. Add a dose of bluster and denial in Ballmer's case and it gets worse...
Excellent letter. Not sure I agree with just paying such a high frictional cost. At a minimum your letter gives excellent food for thought. I am not stating that I don't agree with your reasoning. I just need to ponder your suggestions. Of course your suggestion is more compelling if MSFT were to make future poor capital allocation decisions, and you cited at least one, and possibly two, if you include Skype. As I was reading the annual report this week, I did question the purchase of Skype, only in amount. The following were some Observations of 10-K for F2012. 1. Skype cost $8.6B. I have been wondering if Microsoft’s capital allocation has been successful. 2. The report is confusing at times. Can’t put my finger on it, but they seem to play with the reader. One example is the ability to read about the $6B goodwill write-down. It seemed to blend into the pages. I could be incorrect, and I was probably just missing it. The conversion of debt and derivatives is also confusing. 3. I am wondering if Microsoft has changed philosophies in reporting and conservative accounting from the old days. I seem to recall the Research and Development was immediately expensed, and that stock options did not exist. This seems not to be the case anymore. R&D is capitalized at end of product cycle development, and Stock Options do exist. Yet, options are not heavily dilutive. Stock options for F2012 were in the $2.5B range. 4. Important to note that Windows Live, which I think is a big part of X-Box (Devices and Gaming), is included in Windows and Windows Live section. 5. Online Services Division (“OSD”) includes Bing. Seems like OSD lost $8B in F2012. This loss included Goodwill impairment charge of $6.2B. November 15, 2012 (26.77) ThesisMicrosoft has a AAA balance sheet. Close to $8 per share of cash as of 9/30/12. Free Cash Flow and earnings are both of high quality, and I believe both to be stable at a minimum. P/E ratio is 9.39X, based on our projected F2013 earnings of $2.71 per share. Dividend yield is 2.86%. We project the dividend payout ratio to be a healthy and conservative 30%. I don't see them being replaced in enterprise. Trying to "kill this investment," and I can't. I just don't see the degradation of the company that so many others discuss (see yearly comparisons below). My favorite part of the investment thesis is the current price. Of course, could go lower, a lot lower, but that is the way investing is. I think many think that revenues have not been increasing, or are in decline. Maybe the stock price catalyst would be the understanding of the simple math, and seeing that revenues, contrary to popular perception have been on the rise for a decade + (not including F2009 where there was a decline.) Projected investment returns for 15 years are estimated at 15% to 22% annualized based on current price. Waiting to hear penetration of Surface. Windows 8 projected to be slow but steady penetration, similar to Windows 7. I digressed from my original intent of my post, which was to commend you for such fine work. I think your letter to BOD could go viral, and certainly create food for thought.
If he thinks that he will get anywhere with just one letter,[which is SO long] make it concise and to the point, then send to every member of the board, not just to the HQ...we live in hope, but I doubt anything will changeAlan
>>>>>>>>>>>One would think that Gates and Ballmer are aligned with shareholder interests given their large ownership.<<<<<<<<<<<The problems with Microsoft have nothing to do with management's interest being aligned with shareholders. Ballmer does quite well for Microsoft shareholders. He also does a good job exciting IT managers. The problem is... user satisfaction is terrible. The actual people who use Windows have been unhappy with their products for years. Microsoft alienated tons of users with Vista and they never managed to capture those users to buy again. Windows XP remains Microsoft's single best release and it seems unlikely Windows 7 or Windows 8 will surpass it.When XP was released, it was easily the best thing around, OSX and Linux had anemic market share and little in the way of applications. Now there is a lot of choice. Macs are more popular than ever, a lot of people are replacing PCs with iPads or other tablets, and IT departments are caving to the pressure to allow outside products in.No matter how much you push dividends or do share buybacks, if users are fleeing the platform revenues and income shrinks.
>> Microsoft has a AAA balance sheet. <<I'm a bit confused by their balance sheet.Debt increased $6 Billion to $12b in the past 2 years (from FY 2010 to FY 2012). Additionally, they just borrowed another $2b which means (at great rates mind you, but at minimum it offsets $2b in cash). So an $8b increase in debt while they are buying back shares and making $1.2b acquisitions?Microsoft is obviously capable of paying that off, but it seems odd to me that they are increasing debt so much.
>>> which is SO long << Indeed. I'm guessing the investor relations guy doesn't even get past the 3 paragraph explanation for why he only owns "1 share".
"The problems with Microsoft have nothing to do with management's interest being aligned with shareholders. Ballmer does quite well for Microsoft shareholders. He also does a good job exciting IT managers. The problem is... user satisfaction is terrible. The actual people who use Windows have been unhappy with their products for years"I think the opposite on both accounts. Long term shareholders have little to be excited about and should (still) be worried about over-milking the cash cows as long term investors. At best Ballmer leaves little to nothing to be excited in ROI about except for milking that past and while competition mounts in lateral & vertical markets.Users (lets put aside W8 since it's barely been out) have been largely satisfied with their Windows software options as long as XP has been supported and as Win 7 has been a fine product especially given it's transitioned users to a 64bit platform. There is less user experience difference from one platform to another than ever before.IT managers aren't excited about Win8 - why would they be?And though it generates less revenue I also think Xbox users are satisfied customers as the earlier quality issues ironed out and as new controller & media access value added has kept the platform fresh.B
>>> Users (lets put aside W8 since it's barely been out) have been largely satisfied with their Windows software options as long as XP has been supported and as Win 7 has been a fine product especially given it's transitioned users to a 64bit platform. <<<Apple's been draining off all of the high end customers from the Windows eco-system for 5 years. Windows users are adopting the iPad like it's the second coming. Windows 8 has landed on the market with a dull thud and after a moments pause, everyone went back to buying iPads. Granted, the iPad is a new thing, but Mac sales are killing PC sales at a much higher price.None of these things point to happy, satisfied users. It would probably be worse if it weren't for the millions of captive users due to windows specific applications. >>> And though it generates less revenue I also think Xbox users are satisfied customers as the earlier quality issues ironed out and as new controller & media access value added has kept the platform fresh. <<<The whole XBox division is in the red right now since Microsoft started bribing Nokia and the expense comes from that division. Even on good years it was a blip on the income statement and its declining due to weak console sales. Microsoft probably should have pushed the Surface RT out under the XBox flag and offered deep integration with that platform.... instead they priced Surface RT ridiculously because they included an a MS Office which people can't legally use professionally. Major opportunity lost.
Ballmer does quite well for Microsoft shareholders.Given how the stock has been for the past decade+, how do you figure?dsbrady
"Apple's been draining off all of the high end customers from the Windows eco-system for 5 years."Some - not near sll of them....c'mon. And credit for that certainly also goes to halo effects of ipod,iphone,ipad as well as being ABLE to run Windows on Apple hardware unlike in the non Intel days 7+ years ago - not exactly an indictment of Windows as an OS or Win Office."Windows users are adopting the iPad like it's the second coming." & "None of these things point to happy, satisfied users."You're all over the place with those points - that I have an iPad3 doesn't mean I'm unhappy with my desktop PC's or laptops let alone the OSes that I hardly have to think about on them. "The whole XBox division is in the red right now since" <snip>Since when is there an "Xbox division" or a reported line item showing it's net gains or losses? Historically MS lumped all sorts of losses in E&D division along with Xbox. How much softness of the gaming market was really their phone losses isn't known AFIK (anyone who has better than 3rd party guesses is welcome to correct me with atomized fiscal info from MS itself)."Microsoft probably should have pushed the Surface RT out under the XBox flag and offered deep integration with that platform.... instead they priced Surface RT ridiculously because they included an a MS Office which people can't legally use professionally. Major opportunity lost."I don't get (no confidence) the release of the RT either but I'm also not seeing how a Surface RT product is related to living room game console sales as if that was the right fit that they missed (Xbox doesn't need Win8 help for media consumption value added).B
>>> Some - not near sll of them....c'mon. <<<No, not 'all'. Apple sells more $950+ PCs than all three major PC makers combined. Probably twice as many. They don't break out their sales that way, but their average selling prices are low enough it's mathematically impossible for them to sell high end systems in comparable volumes. This even applies to Lenovo who has a significantly higher ASP than the rest of the Windows PC market.>>> You're all over the place with those points - that I have an iPad3 doesn't mean I'm unhappy with my desktop PC's or laptops let alone the OSes that I hardly have to think about on them. <<<There is a lot of documentation out there demonstrating that people are in fact switching from PCs to iPads. Within a year of the iPad's introduction, netbook sales plunged. Of course the iPad lacks a keyboard and that's the kiss of death for productivity. http://www.youtube.com/watch?v=eywi0h_Y5_U&feature=playe...>>> How much softness of the gaming market was really their phone losses isn't known AFIK <<<Sure. But what we do know is it's not nearly enough to cover their phone losses, that xBox unit volume has been going down, their ASP has been going down, and that they don't have a new Kinect type product to drive sales this year.>>> I'm also not seeing how a Surface RT product is related to living room game console <<<Who does the RT appeal to now? No-one. They've alienated their OEMs, include a non-touch version of office, and put in a schizophrenic Windows XP desktop with no purpose (other than as a place for the non-touch version of office to live). They should have skipped the OEMs entirely for RT, skipped the faux desktop, and let customers pay for the Metro version of Office when it was ready. With the time/ money saved from not releasing the mediocre version of office they could have built xBox integration, written some nice games and lowered the price so it's appealing versus it's main competitor.They could have skipped the old Windows branding on it also. They could have just called it "xBox Surface". That would have nipped all the compatibility confusion in the bud (and Windows 8 would have "Surface Apps" instead of 'formerly known as Metro' Apps).
As much as I would like, I can not take credit for the letter. It was written by an analyst whose work I receive -- Dan Ferris.
>>> Given how the stock has been for the past decade+, how do you figure? <<<I guess a better way of looking at it is that Microsoft does everything that investors consider to be shareholder friendly. Lots of buybacks, good strong growing dividend. They milked the company quite well. Folks who owned millions of shares of Apple and couldn't sell them (Gates/ Ballmer/ BOD) have done as well as you can expect. Well as well as anyone who owns a business that is executing as poorly as Microsoft has been.
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