Seattle: Microsoft might be about to report that its earnings grew more than 20 per cent on climbing revenue but the results will fail to rouse the software company’s shares from a decade-long slumber or douse fears its dominance of personal computing is waning, Reuters reported on Wedensday.
The second-largest US technology company is expected to post on Thursday yet another solid gain in earnings and sales for its fiscal third quarter, as its stalwart Windows and Office franchises rumble on.
Although the venerable software suites remain clear market leaders, investors fear people are getting used to new ways of computing — using Apple Inc and Google Inc tablets and smartphones — and that will erode Microsoft’s dominance in a work and consumer space that relies on personal computers and installed software.
“What people are going to be focused on is what’s happening with their core PC business,” said Michael Yoshikami, Chief Executive of fund manager YCMNET Advisors. “Is that slowing down? That’s really going to dictate what Microsoft’s future earnings power is going to look like.”
“In the long term, their core cash flow business is going to be impacted, particularly if we start to see an ASP (application service provider) model where companies are essentially renting software.”
That is precisely what companies like Google and Salesforce.com Inc offer with their online programs. Microsoft is countering with online versions of its own, but it has not yet done enough to persuade investors it will carry its dominance of the desktop into the age of “cloud” computing.
In the past six quarters, the world’s largest software company has beaten Wall Street estimates — hitting a few records along the way — only to see its stock fall in subsequent days. Its shares are now down 17 per cent from a year ago, compared with a 14 per cent gain in the tech-heavy Nasdaq index, and stuck at the same level as in 2001.
PC sales — the most reliable indicator of Microsoft’s financial success — fell one per cent in the first three months of the year, according to one research firm, as the iPad and tablets ate away at the fringes of the market.
Long term, some see the new devices as unleashing a genie that Microsoft may never be able to put back in the bottle.
The new tablets “are making a sea of Microsoft customers comfortable using an operating system different than Microsoft’s,” said Yoshikami. “You’re going to see a migration away from the monopolistic dominance that Microsoft had, and that’s worrisome for them.”
That fear has chilled Microsoft’s stock. Despite quarter after quarter of strong results – racking up record sales and profit in the last three months of last year – investors are unwilling to grant Microsoft the valuation they used to.