S&P’s Jonathan Rudy sees the giant as a powerful long-term play. Other software picks: Sybase, ADP, and Network Associates. Read the interview at BusinessWeek.
The Case for Buying Microsoft
About The Author
Eugenia Loli
Ex-programmer, ex-editor in chief at OSNews.com, now a visual artist/filmmaker.
Follow me on Twitter @EugeniaLoli
If you read the article, he’s not talking about Microsoft products, he’s talking about cash flow and the fact that MS has committed to spending $6 bil. on R&D over the next year. What they will spend that much money on, I haven’t a clue. What is implied in the question “Can we expect MSFT to home in on all those targets [web services, wireless and continued convergence of consumer devices]?” is the belief that MS needs to find themselves some new businesses. And they do, because they have just about maxed out their market share from existing businesses. I rather question whether software companies are a good investment play anymore– open source has really challenged the notion that a proprietary SW company will continue to be a profitable operation– barring MS and any company that can offer superior customer service and sell it organizations willing to pay for it.
It should not be far until what happens to microsoft happens to most monopolies: They implode.
Before you know it.. microsoft will hae it’s hands in everything.. leaving no where left to expand. They will simply outgrow the markets and themselves.
I rather question whether software companies are a good investment play anymore– open source has really challenged the notion that a proprietary SW company will continue to be a profitable operation
I think it depends on the company, really. If open source keeps growing and getting better, it may be very hard to market products such as web browsers and email programs. But the trick is to develop apps that the open souce community doesn’t seem that interested in.
As for proprietary companies staying in business, I really don’t think that some companies such as Propellerheads and Steinberg have anything to worry about anytime soon
From a pure stock perspectibe, M$ is a solid investment: it has a great cash flow and little debt.
More like NO DEBT.
Got 10 shares myself.
I put my money in Microsoft, they perform and build quality software. One of the very few, Technology companies that has survived the ‘tech’ downturn.
interesting link
http://finance.yahoo.com/q/is?s=MSFT
I do agree that they are going to be around for a long time, the anti trust settlement is over and they are expanding to wider markets.
With most of it’s major antitrust issues gone, I think Microsoft is going to have a solid feature. They are paying a lot of attention to things like security that should help their profits in the future.
And the fact that there really isn’t a solid competitor to Microsoft that is capable of taking more than a few percentage points from it’s market share in a number of markets.
They have also pretty much bruised or destoryed all competitors to them in the past. Even large companies like Apple, Sun, Novell, Netscape, AOL, etc… None of these companies are the huge powers that they used to be, mostly because of Microsoft.
Basically: don’t mess with Microsoft. I don’t agree that a company should be able to do this, but if you are a investor, it makes perfect sense 🙂
Well, maybe. But I can see a very possible future with decreasing profits for Microsoft (and other software makers) as more people discover products like OpenOffice.
While some will argue that the open/free/low cost options will not be successful do to percieved instability or robustness of the products. Many will conclude the open/free/low cost software may have flaws, but at least the price for the flawed products is much less than the price for Microsofts flawed products.
This is a aspect that so many seem to miss by implying that all Microsoft products are flawless.
The move to non Microsoft products will cause Microsoft to reduce the price of there products and therefore result in reduced profits and even some losses.
In the short term, I suspect that this is not as likely to happen to Apple as there are far less that use their products with as much dissatisfation as those that use Microsoft’s.
“As for proprietary companies staying in business, I really don’t think that some companies such as Propellerheads and Steinberg have anything to worry about anytime soon
”
Really ? Why was Steinberg bought by pinnacle this year ? Why emagic was bought by apple last year ? Certainly for economic reasons.
If linux becomes viable for a desktop use, there is a lot of interesting things to do (jack, ardour, softwares used over network, ie DSP on one computer, GUI on another one, etc…)
MS’s stock may not be at risk from legal issues, it’s balance sheet may be (is) outstanding, and it may be “undervalued” relative to other tech stocks, but that doesn’t mean it will go up.
For the stock to go up significantly, MS will have to do something better. A typical increase would be thru increased sales, especially by entering a new market. We know MS has near total dominance in home and business desktop OS and productivity software, so where can they expand?…
Europe, Asia, South America… but wait, those continents/countries are (rightfully) suspicious of MS. They’re suspicious of the US. They don’t like MS licensing. Many can’t afford MS products as currently priced (even when deeply discounted).
They don’t trust MS as a steward of their data (at least the format in which it is stored). They don’t want to “invest” in US companies (by buying lots of their products). They want to support their own emerging tech industries.
Long story short, OSS is the vehicle of growth outside the US, and unfortunately for MS, that’s the market they are counting on for their future.
MS used to be a super investment, but those days are over.
‘This is a aspect that so many seem to miss by implying that all Microsoft products are flawless.
The move to non Microsoft products will cause Microsoft to reduce the price of there products and therefore result in reduced profits and even some losses.
In the short term, I suspect that this is not as likely to happen to Apple as there are far less that use their products with as much dissatisfation as those that use Microsoft’s’
I do not see your logic, nor what metrics do you have to back up this so called claim of ‘dis-satifaction’. I still put my money on MS, and it will continue to do well. They have the money to spend on R&D to develop quality products. Not to mention, all of the other fronts they have solutions for such as: CRM, SQL Server, Exchange and so on. Those few examples are very high quality software, so in the end if the so called ‘claim’ you made about being unhappy was true. The article was written by a Professional in the field, I would rely on what he says not you.
Honest businesses tend to win. I’ve seen it in practice, and I can’t help but thinking it’s a principle that will apply to Microsoft.
The key is that honesty is simpler, and people like simple. Microsoft is a very complicated business, and they can’t hide that from their customers, or at least not forever.
I can’t believe it, all that talk about stock, MS, Oracle, PeopleSoft, Novell, and absolutely no mention about SCO.
I guess they are unclear about this company’s future.
from martin
“Basically: don’t mess with Microsoft. I don’t agree that a company should be able to do this, but if you are a investor, it makes perfect sense :-)”
Does no one take a moral view on this any more?
MS found gulity of illegal anticompetitive behaviour in the US THREE TIMES, not punished; still in litigation in the EU etc etc….
Is the only justification to buy stock that it will make money?
I agree wholeheartedly, but the average Investor doesn’t care about ethics.
The few that do care about Ethics are usually blinded to issue by their StockBrokers, (very few of which are about either Corporate Ethics or Professional Ethics).
Just remember that the Author of the Article is a Stockbroker, and I’ve never met a stockbroker who was passionate about anything but Money.
“MS found gulity of illegal anticompetitive behaviour in the US THREE TIMES, not punished;”
Yes, its very sad to see how corrupt goveremnt/large establishments have become.
I myself havent purchased any MS products in the last 1 1/2 years and dont plan to ever again. My small resistance, which might not seem so amazing but atleast im content in knowing that im making a difference(as small as it may be)
Once again we get the anti-microsoft trolls acting like Microsoft is the devil himself.
Does Open Source provide a console game platform? Mice and keyboards? An ISP? A Web portal? A TV box to access the internet? A music download store? Most MS revenue may come from Windows and Office, but they’ve got their fingers in a lot of pies.
Anonymous wrote…
”
I do not see your logic, nor what metrics do you have to back up this so called claim of ‘dis-satifaction’. I still put my money on MS, and it will continue to do well. They have the money to spend on R&D to develop quality products. Not to mention, all of the other fronts they have solutions for such as: CRM, SQL Server, Exchange and so on. Those few examples are very high quality software, so in the end if the so called ‘claim’ you made about being unhappy was true. The article was written by a Professional in the field, I would rely on what he says not you.”
I did not make a “so called claim” I said I was “Not so sure” I even said “maybe” about the article.
I find it incredible (literally) that anyone one can say with such certainty that Microsoft will continue to dominate the software market the way that it currently does with similar profitability that it currently has. I still say that “I can see a very POSSIBLE future…” Possible does not equate to certain, or even likely.
On the other hand, the following is a statement that I and others that I know definately disagree with…
“CRM, SQL Server, Exchange and so on. Those few examples are very high quality software, ”
It is possible that we are the only ones.
Also…
“…They have the money to spend on R&D to develop quality products. Not to mention, all of the other fronts they have solutions for…”
Indeed. But this has been true for Nicrosoft for many years. Does this suggest that all solutions that have resulted from this process have resulted in quality and satifactory products?
Some believe yes, others believe no. Why would this suddenly change?
On the other hand, similar “Professionals” recommended buying Nortel stock when it was on its way down. The same “Professionals” recommended not buying Nortel stock when it was at $0.50.
All the same, they know better than I. But there are possiblities other than the one that seems so certain.
How many shares of MS are outstanding – billions?
11 billion to be exact. Whoever buys something that has 11 billion of them floating around and considers that an investment should take economics 101.
That’s why the stock has been 25.00 USD forever. It would take the whole planet buying some to move it.
‘This is a aspect that so many seem to miss by implying that all Microsoft products are flawless.
The move to non Microsoft products will cause Microsoft to reduce the price of there products and therefore result in reduced profits and even some losses.
However, if Microsoft is wise, they would audit their code, clean it up so that maintainance is easier, thus cheaper which would allow them to lower the price without taking a huge profit hit.
Warren Buffet is the second wealthiest individual in the world. He is the greatest investor in history. WB is also a very close, long-term, friend of Bill Gates. WB has never held any MS stock.
The reality is that in a decade MS could be virtually worthless. Open Source has the potential to totally devastate MS profits in a relatively short period. Maybe as little as 5 years.
from martin
“Basically: don’t mess with Microsoft. I don’t agree that a company should be able to do this, but if you are a investor, it makes perfect sense :-)”
Does no one take a moral view on this any more?
MS found gulity of illegal anticompetitive behaviour in the US THREE TIMES, not punished; still in litigation in the EU etc etc….
Is the only justification to buy stock that it will make money?
Well, unless you’ve joined the “ethical investor” group, nope. The average schmuck wouldn’t know anything about the companies they invest into.
For me, I wouldn’t invest into Microsoft because their share price is over valued, their reliance on a small range of products is too risky vs. IBM who have their fingers in a number of areas, all which are performing well, and to top it all off, they don’t have a regular stream of dividends.
I want to invest into a company where I don’t have to ride the highs and lows, where the share price doesn’t swing from one extreme to another based on a couple of so-called “analysts expectations” which are no more logical than Joe Sports Presenter giving his advice on which team will win on Saturday.
Once again we get the anti-microsoft trolls acting like Microsoft is the devil himself.
I find that statement rude and insulting. Microsoft is an ameturist when it comes to evil. Bill Gates is the margarine of evil, the diet coke of evil, one calorie, never enough.
Warren Buffet is the second wealthiest individual in the world. He is the greatest investor in history. WB is also a very close, long-term, friend of Bill Gates. WB has never held any MS stock.
The reality is that in a decade MS could be virtually worthless. Open Source has the potential to totally devastate MS profits in a relatively short period. Maybe as little as 5 years.
Just as a follow up for the anti-anti-Microsoft mob who troll this board; WB buffets company, Hatherway Investments has NEVER owned ANY shares in ANY IT or “new technology” company.
I follow the same rules Warrent Buffet does; invest into companies for the long term and aren’t going to go out of favour with customers. In 50 years time people will still want chocolate, chewing gum, concrete, soft drink and fast food. Trends will change, but the basics will still be there.
.
“Just as a follow up for the anti-anti-Microsoft mob who troll this board; WB buffets company, Hatherway Investments has NEVER owned ANY shares in ANY IT or “new technology” company.”
I agree totally. In fact there are very few big IT companies over 25 years old. IBM and HP are exception but they started in different busineses (office equipment and electronics respectively). Most of the early IT players are much smaller or defunct.
Evil may be a silly word to apply to Microsoft, but how about “unethical”, “illegal” or how about just plain “thieves” (right, mac users?) Why do people feel a need to defend MS as though they were some sort of helpless victim?
You Microsofties tired of people ragging on MS? Does the fact that they have it coming, have brought it on themselves ever factor in?
MS plays very hard like most corporations. Overall I would say MS is a reasonably responsible corporate citizen. MS doesn’t make weapons, isn’t much of a polluter and doesn’t rely excessively on third world sweatshops. Comapred with the other big corporations MS is actually pretty benign.
The MS monopoly arose largely because most of it’s competitors are run by technocrats not great businees people. It is hard to imagine Jobs, McNealy or Ellison being anywhere near as successful in most other industries.
However I think MS is probably a poor investment because it simply can’t get much bigger. It has totally saturated its markets, has a small product range and a very poor history of innovation and flexibility.
a full bullowned fraudulent corepirate nazis’ stock markup tout. what a surprise?
you’ll just have to peddle the worth less payper. a phonIE snow job’s better than no job? tell ’em eugIE?
MS plays very hard like most corporations. Overall I would say MS is a reasonably responsible corporate citizen. MS doesn’t make weapons, isn’t much of a polluter and doesn’t rely excessively on third world sweatshops. Comapred with the other big corporations MS is actually pretty benign.
True, however, it makes little to no effort to invest into their international operations. There isn’t one line of code written in Australia, New Zealand, UK, Germany. The only other place, besides the US, is India and possibly a few other countries.
Microsoft wanted to setup an R&D facility in NZ, in return they expected the NZ government to make major changes to the law relating to copyright (make it a criminal offence) and hacking/cracking (make it illegal), there was also a number of changes they wanted to see at the university level. The government said no, Microsoft decided not to setup. Rather than working with in the law and the existing government, they assumed they could swing their muscle and get things changed. Sorry, 2 things NZ’ders hate, tall poppies and large and arrogant companies.
The MS monopoly arose largely because most of it’s competitors are run by technocrats not great businees people. It is hard to imagine Jobs, McNealy or Ellison being anywhere near as successful in most other industries.
Larry Ellison isn’t so much a problem, he knows what needs to be done. SUN is the one who just doesn’t get it. They scream, “come to JDS” but doesn’t want to do a thing to get third party software vendors to produce software for it.
Sitting on the side lines screaming, “linux is cool” isn’t going to make people adopt. People want to see that it can run on their computer, they can use it without needing to be a rocket scientist AND MOST IMPORTANTLY that they can get the applications THEY want for it. Sorry, some opensource application in alpha with 1/10000th of the needed features is NOT a valid choice.
SUN need to stop being such a cash hog, go to companies and say, “how much will it cost to port YOUR applications to JDS”, find out the cost, cut the man a cheque and sign the agreement. With in 2-3 years you will have 100s of vendors poping up producing high profile software titles for JDS. You have to spend money to make money. McNealy doesn’t get it because he isn’t a businessman, he is educated in economics and he fails to grasp the basics of business; you don’t make money cutting costs alone, you need to expand the market, cut costs, and create a “ecosystem” in which third parties can base their products on. This ecosystem needs to be created and sorry McNealy, you *MIGHT* just have to spend some of the $5billion to actually achieve that goal.
However I think MS is probably a poor investment because it simply can’t get much bigger. It has totally saturated its markets, has a small product range and a very poor history of innovation and flexibility.
Agreed. I personally can’t put my head around why they created the XBox when a joint venture with Sony, embedding Windows technologies into the playstation at a small fee would be alot better than the amount the XBox is costing them right now.
<linuxzealot>
No don’t buy MS. It will only result in losing money. Microsoft doesn’t have a chance to maintain dominance on the desktop. Linux will be everywhere, doing everything. It is ready for the desktop even though you have to compile your applications half the time and write config files and there are not many major applications available it will still take MS out. As a matter of fact Linux is expected to wipe out half of the MS desktop market share sometime next month, with MS out of business in a year.
</linuxzealot>
Had to be said.
I wouldn’t buy MS on the basis of morality. i don’t buy their products anymore. But there are those on this board who think that Linux will be on the desktop and have replaced MS in about 5 years. Please.
If you are looking solely for an investment to make $$$, MS is probably a good one. Most businesses use MS products as well as most homes, schools, etc. Further, MS has services and gaming consoles. They are becoming more diversified all the time. In business terms that makes them a company that will not likely fail. Parts of MS might come to a halt, but MS will continue as a whole.
Are they still around? Weren’t they the company that came out with an insecure, crash-prone OS based on VMS in the 20th century and never made the transition to UNIX in the first decade of the 21st, when they still had money. They actually used to be in the Dow Jones, just like American Buggywhip and US Lead Refineries.
True, but they were able to intimidate, threaten, cajole, coerce the cowardly OEMs into giving the consumer little choice but to buy a Wintel or buy a Mac off the shelf or buy online and pay exorbitant prices for a machine with another OS pre-installed.
Mr. Rudy must have a large amount invested into Microsoft stock. Unfortunately, Microsoft is faced with a mortal enemy. It is known as open source. The first stage in facing mortality is denial and Mr. Rudy along with a number of other analysts are exhibiting the trait by the bushel.
Apache continues to gain while Microsoft’s IIS loses. The most recent graphs from Netcraft even show a mild resurgence for SunONE.
At this point, Microsoft has virtually no chance of dominating the server market.
It is only a matter of time before Linux begins to seriously encroach on the desktop.
The Israeli government’s move to Linux is just the beginning of Microsoft’s woes.
The hardware market Microsoft supports is beginning to fragment and will only serve to magnify Microsoft’s support problems.
Microsoft still has a chance to redeem itself. They can still put the Windows GUI on a *nix core. Otherwise, Windows will continue to slowly, but progressively bleed marketshare to open source alternatives.
IBM’s enthusiastic support for Linux is an ominous sign for Microsoft. The SCO suit will ultimately fail and Microsoft will no alternative but to compete an on open playing field.
Unfortunately for MS, they have never shown an ability to truly compete with a level playing field. And that precisely is the biggest issue for MS.
Can MS compete without the support from its Windows monopoly. Perhaps they can and Mr. Rudy will laugh smugly to the bank. I am not so sure on this one.
At this point, Microsoft has virtually no chance of dominating the server market.
What was that you were saying about denial ?
It is only a matter of time before Linux begins to seriously encroach on the desktop.
That’s a long time for Microsoft to improve their products.
Mac OS X is going to encroach on Windows, not Linux. At least, not unless someone makes a complete, coherent Linux desktop and gets developers and hardware OEMs enthusiastic about that desktop.
The hardware market Microsoft supports is beginning to fragment and will only serve to magnify Microsoft’s support problems.
Huh ?
Microsoft still has a chance to redeem itself. They can still put the Windows GUI on a *nix core.
This would just be stupid. From a design and technical perspective the NT core is a better choice than than unix. It just isn’t as *mature*.
<i.Otherwise, Windows will continue to slowly, but progressively bleed marketshare to open source alternatives.[/i]
Microsoft isn’t losing marketshare to Linux, *other unixes* are losing marketshare to Linux.
IBM’s enthusiastic support for Linux is an ominous sign for Microsoft.
IBM are selling services, not software.
It’s really, really hard to make money selling only open source software.
The SCO suit will ultimately fail and Microsoft will no alternative but to compete an on open playing field.
What difference will it make ? The outcome of the SCO suit – barring something completely left-field like the GPL actually being found unenforcable/unconstitutional/whatever-Darl-thinks-this-week – is going to have practically no impact whatsoever on the rest of the market.
Unfortunately for MS, they have never shown an ability to truly compete with a level playing field. And that precisely is the biggest issue for MS.
Every product Microsoft has, at some stage, *wasn’t* the most popular, prevalent, use-it-by-default piece of software.
Can MS compete without the support from its Windows monopoly. Perhaps they can and Mr. Rudy will laugh smugly to the bank. I am not so sure on this one.
I’d be fairly confident. They had to do it before they had a “monopoly” to get into the position to be able to make one in the first place.
I think anyone who thinks MS is going to be ousted by Apple or even Linux at this stage is NUTS. Money is power and we all know that MS has more than ANYONE.
Apple would have to get off its high horse and appeal to the average user more, not just the already Apple worshiping fanatics who plague its path every step of the way. If your computers cost 1800-5000 dollars, you are not going to get many people to buy them. Especially when you can get a PC running Windows that will beat out the G5 in every benchmark test for less then $1100. AMD’s athlon 64 is going to hurt Apple so badly that it is going to have to do something or risk losing it all. I just dont see Apple changing though. Its lies about the benchmark tests for the G5 proove it is struggling to compete. http://spl.haxial.net/apple-powermac-G5/
Linux on the other hand has a shot if they would put more effort into ease of use. Linux is too frustrating for the average user and many wouldnt touch it with a 10 foot pole because of that. Not everyone is a computer genius or has the time to sit down and learn all the quirks involved in Linux.
MS is a sure bet for the future with its user friendly software and mega bucks to back it up. They wont be going away in our lifetimes thats an almost certain garantee.