Microsoft: The Decline Begins
From BNET: Microsoft: The Decline Begins
Been catching a few stories from BNET in my Google news alerts. Seem as if they hate IBM/Lotus and Microsoft equally. :) Anyway...
Microsoft disclosed that sales fell 6 percent during its third fiscal quarter ending March 31, its first ever year-over-year quarterly sales drop, and the start of an inexorable demise. Rome didn’t decline in a day, and neither will Microsoft, but the graffiti is on the wall.
Microsoft CFO Chris Liddell sounded funereal during yesterday’s earnings call, citing the toughest economic climate the company has seen in its 30 years, and cautioning analysts that while conditions had stopped worsening, he hadn’t seen any indication that they were improving.
But unless Liddell has been living in a cave, or getting his news using a Windows Mobile smart phone, he knows that a range of tech companies, including Apple, Amazon and Google, described a much rosier outlook for the future. The difference is those companies are still at the front, while Microsoft is near the end of its life cycle of relevancy.
I know it's media sport to predict the decline and fall of Microsoft. I know I've done it on this blog, and been pretty wrong on a consistent basis. But there are some troubling shorter-term factors in play here.
Microsoft’s performance would have been catastrophic were it not for annuity income from its Servers and Tools division — licensing revenue that came up for renewal during the past quarter. And while those renewals were stable, customers weren’t adding products as they usually do, nor were they adding seats; indeed, because of layoffs, many of them were in fact reducing seats.
Microsoft’s fourth fiscal quarter, ending June 30, is the really big one for annuity renewals. If Liddell hasn’t seen any improvement in business conditions — and he says he hasn’t — that bodes really badly for Microsoft’s annuity business and thus the company overall.
Liddell projects that the company will have really great products coming to market in the next 12 to 18 months, yet they don't see things improving before then. Much like any other company dependent on per-seat licensing, they have to be concerned that large companies are cutting staff (and seats) and delaying purchasing the newest toys in the window.
Macs are becoming ever more mainstream, the entertainment division will never recoup the billions in losses they've incurred over the years, and how long have we been waiting for the payoff in all the online investments to occur? Not good signs, and no one like Gates is at the helm to pull a sea change a la the internet memo.
If it weren't for the billions in free cash flow Microsoft has coming in, they'd be forced to do major cutbacks across the board, slicing many of these side businesses that haven't delivered. As it is, their cutbacks pale in comparison to choices and decisions facing industries like the automakers.
It may be a slow decline, but it's a decline nonetheless. I'm not sure any single company will dominate the computer industry again like Microsoft has in the past. The barrier of entry for new products has become more of a speed bump than a hurdle, and there's far too alternative (read: cheap) products for just about every major offering that rakes in the bucks for the big boys. It'll be interesting to look back in a decade and see how obvious some of this was in hindsight...