Microsoft (MSFT) has been a world leader in software products for decades. With over an estimated 2 billion PCs in use around the world, most of these use Microsoft software including Windows and Microsoft Office. On Wednesday, Microsoft’s stock surged 5.3% to $56.84, which is the highest the stock has traded in the last three months. While this may seem the best time to buy the multinational technology company’s stock, several things almost guarantee that this hype will not last.
Purchase and Use of Personal Computers is Declining
Though the PCs in use around the world today are a billion more that those in use back in 2008, the rate of purchase of PCs has been declining in recent years. This has had a negative effect to the sales that Microsoft has recorded from software products.
Microsoft’s Entry into the Smartphone Business a Disaster
The decline in the number of PCs people are buying around the world may have in part prompted Microsoft to try its luck in the smartphone business. This may have turned out to be the worst investment decision the tech company has made in the last decade. For years now, Microsoft’s smartphone division has been eating into the PC sales. Microsoft’s phone sales are on a decline and Windows Phone has failed to excite consumers. The leadership at Microsoft might have been hoping for better days for the smartphone division, but there is little in the real world to show the possibility of that division becoming profitable any time soon.
Microsoft’s Second-quarter Revenue Drop
It will be difficult for Microsoft’s stock to maintain its current momentum given the $20.6 billion in revenue that Redmond posted in its second quarter. Compared to the revenue the company recorded in a similar period last year, this is a $2 billion decline.
Microsoft Gaming Division is Not Growing
The software giant is preparing to release new hardware for Zbox and gaming this August, perhaps, in the hope of reviving the now slumping gaming division. Revenue from its gaming division has been declining in recent years. During the company’s last fiscal quarter, the gaming revenue decreased a whopping $152 million. Microsoft now hopes to take on this $100 billion industry by increasing its efforts in both console and PC gaming. Play Station 4 is performing better than Xbox One, and Microsoft is determined to upend this in the near future.
Microsoft Products Have a Negative Connotation
In today’s tech world, consumers buy Microsoft products when they feel they do not have a choice. This is especially true in the United States where most people highly regard Apple (AAPL) products. Last year was a great innovation year for Microsoft. If the corporation maintains this momentum in innovation through 2016 and beyond, the negative undertones regarding its products may start to fade.
Investors are also interested to see what Microsoft does with its latest and most expensive purchase; LinkedIn (LNKD). The company spent $26.2 billion in the acquisition of the professional networking social platform. But with a tradition of bad deals, enter Nokia’s recent $7.9 billion write-off, investors have reasons to be skeptical on this one too. That said however, some analysts believe LinkedIn may present Microsoft with the kind of growth that will help the company’s top-line thus not allowing its stock to fall again in the stagnancy mode experienced between 2006 – 2013.
Shares in the $439 billion market cap company are currently trading at $56.05, up 0.28%.
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Haven’t you forgotten the Cloud and the fact that Office runs in Apple and Android devices. Microsoft knows what you say, but that is history. Negative connotation, again you are way out of date.
All the negatives have already been priced in to the stock. Nadella has already basically written off the smartphone play. PC decline is well understood and accounted for. The future is subscription-based software services like Office 365 and the cloud (Azure). Microsoft has already pivoted. This article reads like it was written 2 years ago.