This page has been archived and commenting is disabled.
Goldman Downgrades Microsoft, Cites "Change In Course" Needed, Lowers Price Target From $32 To $28
Monday is not shaping up to be a pretty day for owners of the company that was once the modern-day equivalent of Apple, Amazon and Netflix. Oddly enough, that leveraged dividend appears not to be doing it for the "value" investors. Stock is red after Goldman, of all banks, decides to tell the truth: "We are downgrading Microsoft to Neutral and lowering our EPS estimates by 4%, 3% and 4% in FY2011, FY2012 and FY2013, and therefore our price target to $28 from $32, which suggests more upside in other Buy-rated names in our coverage. We believe the intrinsic value of shares cannot be unlocked if the status quo remains, and we have increased caution near term on a more elongated PC refresh cycle, combined with the newer threat of notebook cannibalization from tablets, where Windows does not yet have a presence." Here Goldman appears to have grown a little sense of humor: "Since added to the Americas Buy list on 8/12/08, MSFT shares have returned -13%, compared to -11% for the S&P 500."
Full report:
»
- 3301 reads
- Printer-friendly version
- Send to friend
- advertisements -
So go long Microsoft now?
Nope Microsoft is going to be killed off. Apple is going to be exalted to number one monopoly status. With express written consent to exploit open software.
Goldman is right on the money this time -- MSFT is a bloated legacy software developer whose internal focus is 99% on internal politics, 1% on innovation.
They also lost a huge amount of money on their Xbox division and their failed games group -- The Xbox and Xbox 360 lost billions for MSFT. The original Xbox never made a dime, and the 360 is only now starting to make up for the billions poured into it.
and don't forget about mister gates. he's a visionary. "kill granny and you won't have to lay off 10 teachers". he loves those death panels:
http://www.youtube.com/watch?v=NrJBY2l1MQQ
I know this was meant to be sarcastic, but I dont think it can be over-emphasised how much a non-visionary Bill Gates (and Steve Ballmer) is/was.
They were businessmen and knew how to run a successful business. As technology visionaries they are mediocre at best, absolutely misguided at worst.
One of their biggest mistake was to monopolize Windows by technological means.
They created and fostered the "DLL hell", the Windows "API maze", the "integration" of the browser into the OS and other nightmarish idiocies. Their intention was clear: Windows should have viral properties - once a new version is in an organization it will drive the upgrade of the rest of the installed base within that organization.
The end result: Windows became an absolute security nightmare even to Microsoft - a hotbed vor virii - exactly because many Windows applications have viral properties. (such as .DOC files embedding executable code ... or webpages embedding executable Windows code, etc.)
Its bloated size did not help either: beyond the slowdown it caused the hugely complex 100+ million lines of Windows code turned out to be a bottomless pit of zero-day remote exploits as well.
Millions of PCs are infected with various forms of malware - and eventually, despite their monopoly, this started hurting Microsoft's bottom line and growth prospects as people started wondering why the iPhone or an Android phone is so snappy and productive while it needs no antivirus software.
I doubt Microsoft can fix this: Vista has shown it to them the hard way that they are captives of their own legacy interfaces.
Also, note that Microsoft has a massive and very healthy revenue stream in enterprise markets, which wont go away overnight. They can cut down their "innovation" costs almost overnight as they never did any true R&D to begin with. It will take many years (possibly decades) to play out - but Microsoft's days as a technology leader are over. Their days as patent and litigation trolls are only beginning.
Do you seriously believe that the issue with malware/virus on the PC platform is due to the OS alone? If tomorrow morning, there was no more Windows OS, do you think within a month there would not be malware coming out of the woodwork for Mac OS?
Microsoft has made plenty of mistakes. Looking at the competition, they (collectively) made plenty of their own mistakes as well. MacOS was a failure until they rebooted NextSTEP into a solid OS. Linux has its own share of issues which has kept it from widescale adoption. Let's not also forget that the majority of malware/virus issues are due to human component, versus being OS vulnerabilities.
Yes, it's mostly due to the OS. Windows has been a horrendously insecure OS from the beginning and MSFT hasn't taken the threat seriously until the last decade. In the past it has also pushed hard for technologies like COM and ActiveX, which are horrendously insecure due to their fundamental design.
Microsoft's own researchers have pointed the way toward building operating systems that are far more secure than Windows or any other OS, but Microsoft hasn't pursued them because it's still focused on legacy Windows support.
I'm actually a former MSFT employee. I remember when I worked there in the late '90s. The ENTIRE COMPANY'S E-MAIL SYSTEM was shut down by the "ILOVEYOU" virus for months. The company that made the e-mail program and the e-mail servers and the underlying OS found it could do absolutely nothing to stop a simple e-mail virus bouncing around its tens-of-thousands-strong internal e-mail list.
My team's productivity was shut down for months because of it. We actually had to leave our offices and talk to each other, in person, to get things done. The horror!
I understand what you are saying. My point is simply that the bulk of malware is written for the dominant OS because, obviously, malware authors are going to go after the biggest userbase. If that changed, you would see just as many problems with an alternate OS as the various flaws and vulnerabilities were exploited.
Additionally, you will never solve the problem of people getting phished and succumbing to social engineering attacks.
Sure, I agree; you can't solve 100% of it with the OS. But Windows has taken a long time to go from "absolutely apocalyptically terrible" security-wise with Windows 3.0 to simply "well below average" with Windows 7.
There are far, far better ways to build an operating system, and there's no reason why we, the users of modern software, should still tolerate such horrendous engineering mediocrity at this late date. We have spectacularly brilliant hardware nowadays; there's no reason we should tolerate such shoddy software running on it.
http://www.win2008r2workstation.com/
Interestingly enough you see this play out with the iPhone. by AAPL locking it down, it forces idiots to jailbreak which enables root access on a system designed to be inherently secure.
"I understand what you are saying. My point is simply that the bulk of malware is written for the dominant OS because, obviously, malware authors are going to go after the biggest userbase."
You are parroting this. I've seen this said thousands of times by hundreds of people. It's just not true but it makes so much logical sense to people that they gladly parrot it and spread it around.
Windows is the most malware infested OS because it's the weakest. If your a 78 year old woman walking home from the market after social security checks just went out you're more likely to be a crime victim than that 6 foot 250 lb guy with the prison tatoo. That doesn't mean the big guy is completely safe it just means he's at a different spot on the bell curve.
Exactly. Microsoft PR really excells in that area. Here are a few other common examples:
I do not want to restrict my access to information and my access to people just because Windows has been designed by businessmen to have viral properties. I want and need a safe and fast OS that is not a viral platform - and I'm using one.
It's a significant competitive edge.
You're comparing a mobile OS with a fully functional (sic) computer OS?
Right off the batt, fail.
There is no malware for Android? Incorrect, but regardless Windows as a conceptual product has been in the marketplace for 2 decades, Android has been in the wild for 2?
Windows isn't the end all and be all by any stretch of the imagination but you have zero clue what you are talking about on all points.
You meant desktop OS I suspect - and yes.
Please list me significant holes of functionality in Android's productivity lineup. It's not just mobile but on tablets as well - and it is making its way up the enterprise food chain quickly. Windows is losing in just about any category of functionality.
Windows 7 has been on the marketplace for only 1 year and there's already plenty of malware for it. Android is now close to 3 years old and used by tens of millions of people.
Mobile phones are also more valuable targets for attackers, because typically the information stored on mobile phones is more valuable than that stored on desktop computers. Furthermore, phones can make phonecalls, which is an easy and largely anonymous monetization mechanism for malware authors. So if then phones attract more principal malware interest than Windows desktop boxes.
Also, since you claim that there's malware for Android you might want to cite actual, well-known examples of Android malware and also list the zero day remote exploits along which they propagate. I'm not aware of any.
MSFT's competitive advantage lies in their relationships with their developers. The markets they target for direct sales are largely irrelevant. Their primary clients are the individuals and comapnies who write software to sell on MSFT platforms. The OS issues are largely irrelevant as the OS is merely the substrate for productive applications. Perhaps google's ChromeOS or some other platform will change that.
You are right, their bloated secular legacy base is what is holding them back. MSFT provides alot of decent services to many clients (and every once in a while they have a really great service), and they are starting to coordinate and collaborate their various departments into a coherent strategy. They probably should have started that a decade ago, but nevertheless - if the beast is able to reorganize its strategy and get all of it's troops marching in the same direction, the competition posed from trendy niche providers like AAPL will be largely inconsequential. Two completely different business models. It's like trying to compare McDonalds to Smith and Wollenski's.
This is a common misunderstanding of Microsoft's business model. (perpetuated by Microsoft PR as well)
MSFT's competitive advantage lies in them understanding the business side of software and by making sure technologically that going Windows is as irreversible of a process within an organization as possible.
The business side works by realizing the main vectors of how software gets propagated within organizations, and maximizing long-run revenue:
The technology side concentrates on making Windows 'sticky' and 'complex to replicate':
One of the technological side-effects was that Windows has in essence become a form of malware itself.
That is what creates the technological problem of them ot being able to differentiate between 'real' malware and 'Windows apps/features'. It's all using similar techniques so sure anti-virus has a lot of trouble differentiating between them.
Other OSs do not have that property and do not have those malware problems - and are just as usable as Windows. (In fact Apple or Google OSs are typically more usable than Windows. Remember: Microsoft does not target end users primarily.)
The hundreds of thousands of Windows apps that were the envy of competitors 10 years ago are now not only largely matched by Apple (250,000+ apps) and Google (100,000 apps) and are also largely avoided for their inherent security and compatibility problems. OS competitors do not try to emulate Windows anymore - they have their own, better platforms and their own application space.
This is not something Microsoft can solve overnight. They'd have to start with firing the top 100 managers, they'd have to change their culture profoundly and they'd have to rewrite every single piece of code from scratch - in an incompatible way. And yes, they should have started 10 years ago with that process.
They tried to do some of that with Vista and failed. They might pull it off in the future, but I'm not holding my breath. If a customer needs to re-do everything from scratch anyway, why not start with a new company as well, which has the right kind of culture - such as Google?
"what you've just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul"
Sorry, but on a fundamental level you don't know what you are talking about. Not one thing you wrote shows even a smallest twinkle of true understanding.
Thanks for the thorough rebuttal, it's really convincing! ;-)
OK, so he is advocating:
1. Healthcare for the rich (those who joined the club) and kill the poor
2. Withdrawing public financial support for healthcare means that fewer healthcare professions, fewer drug companies, fewer medical equipment manufacturers will be financially supported as well and a percentage of the associated people employed in those business will have to be fired. So, it really comes down to teachers or health care professionals and businesses and not granny versus kids. Maybe Microsoft will hire the healthcare professionals to sew up holes in the Windows operating system.
Gates became rich not because he was brilliant or a visionary. IBM did not see the PC operating system core to its future and Gates had family connections that got him the money and business to support it. At some point it always comes back to connections and how it will be financed. There are no miracles in business.
I agree with you that they are a bloated legacy software developer. They've been putting out shitty product for years. They supposedly have all these computer geniuses and still their OS is shitty. I am so fricking tired of all the "patches" to fix the OS. If they would have developed it right the first time they wouldn't need all these "patches".
Bill and his geniuses have gotten lazy over the years. Their stock should be trading lower simply because they put out shitty product.
"Their stock should be trading lower simply because they put out shitty product"
Actually, Microsoft stock already trades "lower", although it is difficult to say if it is for the reason you assert; seems plausible.
Microsoft is one of the cheaper large cap stocks in the market based on discounted cash flow to capital models.
Microsoft is worth about $28, warts and all.
MSFT is a bloated legacy software developer whose internal focus is 99% on internal politics, 1% on innovation.
That's about right. For more details on the sordid internal politics than most people want to know, see the "mini-microsoft" blog at minimsft.blogspot.com. There's a recent thread about the horrible employee review process: http://minimsft.blogspot.com/2010/09/microsoft-annual-review-2010.html. The posters on that thread aren't exaggerating how bad it is.
No argument that Microsoft is in a difficult situation. They never relied on innovation (they bought or cheated they way into growth areas), but now they cannot buy either Apple nor Google. (They might be able to buy RIMM and hold out for a few more years but that's it. RIMM is a tad expensive for a loser IMHO.)
Regarding Apple gaining a monopoly - while it might happen, GOOG/Android/Linux will have a say in that too.
Android already surpassed the iPhone in a couple of markets and some projections call for half a billion Android users in the next 5 years:
http://tech.fortune.cnn.com/2010/09/26/analyst-android-to-pass-nokia-in-...
And it seems sustainable to Google. What force would stop that kind of growth? Apple has stopped out-innovating Google and while they are still out-marketing them market forces seem to be pointing in a clear direction.
Once apple switched to Intel and demonstrated a willingness to be a monster to Foxconn employees it was all the illuminati needed to bless them.
Iphones are the best spying tool ever developed. Enough CPU, enough battery to burst transmit anything from anyone anywhere. Law enforcement has all rights to them and it has helped solve some crimes. But that's just cover. It's more useful for delivering corrupted officials who are offered up to the public as burnt offerings as a sign that the well is clean and clear and drink up the holy coolaide.
Who can make government confess it's sins and judge it? There are too many to count. It can partial hang out till the stars burn out.
Why do I envision a bunch of people in pin stripe suits wearing steel toed wing tips in front of squids office kicking the crap out of a stray dog.
Google is the new Microsoft.
Google, Apple, ... all airbubbles!
Apple = 300 bil. $ market cap?! GET REAL
Google = IT'S BASICLY A SEARCH ENGINE!
mmm, while I concur - it is more than just a search engine. It is a highly sophisticated algorithm akin to those running our financial markets with one concrete difference. The google algorithm has direct access to honest (by shear mass) discreet data points and uses this information by comparing real time data to an historical perspective. Financial algorithms by comparison are based on nothing but unrealistic future expectations chasing market sentiment and broken dreams.
Hmmmmmmm..... when was the last time a Bell-Weather was downgraded? I guess when everyone who needed to eat off the gravy train had had their fill?
And what percentage of holdings is MS for large pension funds etc. Will they stampede for the exits? Clearly the virus that has been MS is deeply embedded enough.
I'd say this is a calculated shot across the bow for the common investor. There are NO safe havens.
ORI
http://aadivaahan.wordpress.com
Stock is red after Goldman, of all banks,
correction: of all hedge funds
the Swiss said that banks will need 3 times as much money in reserves then they have right now so they'll go donw indeed.
Apple got a $ 430 holla from Ticonderoga...the chop houses are catchng up. Ticonderoga...lmao
God thier report was just hilarious.
"We believe apple will be one of the most covetted gifts this christmas."
Guess the got their shorts on last week
I’m too cynical these days to give any credibility to Wall Street analysis. I’m more inclined to believe that someone on Goldman’s prop desk is short MSFT.
I know its the in thing to bash Microsoft, but I have to give them credit for turning things around with Windows 7; it is a solid, stable OS.
I also don't see anything replacing Windows Server 2008 in the corporate environment anytime soon.
Apple is in a strong position now because of the iPhone. That will change the moment their current position is challenged by Android or other upcoming OS/product.
Agree on this. Almost seems like a contrarian indicator. Vista was a waste of time. but Windows 7 is much more stable and all is not lost for MSFT. XBOX is on the come back, and they are on par when it comes to the cloud.
I find it interesting one of the reasons why Windows is such a horrendous product. Microsoft is known to hire H1-B visa workers exclusively. In the past, it was much cheaper to hire foreign slaves to perform subpar programming to shove the OS out the door. All of Microsoft's software is poor in nature. Even with crappy product, they would beat the competition in launching new OSs and get market share as a result. The US gubimint would condone use of foreign slaves over US workers. Now other nonPC platforms are the hot market with good software. Microsoft's crap can't compete. Microsoft should go broke.
BWHAHAHAHAHAHA The cluelessness on this subject is amazing, especially coming from this blog.
Microsoft is going to be killed off? Microsoft might fade away over the next 3-4 decades, but they are in no immeminent danger of being "killed" off by any competitor out there.
Apple becoming the new monoply? You're joking right? they aren't even in a quarter of the markets that Microsoft competes in. That's overlooking Apple's business stragety that'll keep them from EVER becoming a monoply in any more than consumer gadgets and that's just if the company can survive for more than 5 years without Jobs.
Google presents a much greater threat to a major Microsoft products (Windows and Office) than anyone else and even they aren't diversified enough to be a real threat to Microsoft as a company.
In a market built on trends and public perception, MSFT is a bad buy b/c they are everyone's favorite bloated bad guy. Reality is the company does learn from its mistakes and is here to stay for the foreseeable future.
Well said! If you are patient I'm sure MSFT will reward you very well in the long run. Plus 2% dividend.