RSS

Advertisement

Microsoft: Should Apple Investors Look Out Below?

  • Written by Syndicated Publisher No Comments Comments
    June 20, 2012

    The first four articles of my mobile computing series from 2010, The Creatively Destructive Pace of Technology Innovation and the Paradigm Shift known as the Mobile Computing Wars! illustrated the responses and tactics (as I saw them) of the 3 front runners for mobile computing dominance – Microsoft, Apple and Google. At that time, many if not most, disagreed with Google even being in the running and the majority of respondents couldn’t even understand why I would bother to mention Microsoft at all. Well, fast forward two years and Google now has the majority market worldwide in mobile computing and is increasing that lead by leaps and bounds. Of course, the then favorite (Apple) is still printing money, but the underdog has had the strongest underpinnings and infrastructure of the three, yet is woefully unrecognized. I am not just saying that now.

    1. There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All Monday, 21 June 2010
    2. The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift Friday, 09 July 2010
    3. An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught Tuesday, 13 July 2010
    4.  Wednesday, 14 July 2010

     

    I recommend that my readers NOT underestimate Microsoft’s ability to come from behind on this one.  Out of the three competitors that I feel have the most potential – Apple, Google/Android, and Microsoft – Microsoft is the only company to have:

      1. A fully established and pedigreed cloud ecosystem for the enterprise (Google’s Docs and Gmail apps are relatively new in comparison, and Apple has only burgeoning consumer offerings that have been recently launched).
      2. The most advanced audio/video client side interface with both streaming and subscription services, to be offered through the Zune interface of Windows Mobile 7. For those who haven’t used it, the new Zune software/hardware combo puts iTunes to shame. Google doesn’t have a comparable offering of note.
      3. The de facto standard Office productivity platform, which also happens to be very, very difficult to replicate and/or reverse engineer. It also happens to be, by far the most feature rich. One should expect enhanced compatibility between Windows Phone 7 devices and Office apps.
      4. A rich version of Office productivity apps that can run from the cloud (Office 2010, currently available for download).
      5. A steady stream of revenue derived from practically every smartphone sold. Just like MSFT makes money on every PC sold, it also gets a license fee for every smartphone that needs to interactive with Exchange server, which is practically every phone that needs to interact with a Fortune 500 mail server. This is a legacy benefit from being the de facto standard in the enterprise. Whose product do you thing works best with Exchange? Secret APIs?
      6. The only major mobile OS vendor who also owns one of the top top gaming platforms – the X-Box system. Expect rich, 3D/HD, cloud-based X-box gaming to come to a Windows Mobile 7 phone/table  near you. Imagine X-Box Live (a killer app in its own right) with comparable graphics on a Windows Phone with a 4 or 5 inch super AMOLED screen.

    For these reasons and more, Microsoft will be a force to reckon with. I’m not saying they will win the ultra-mobile computing wars, but it will be most unwise to count them out due to their bumbling and stumbling – all to be expected from a big company that has been on top for so long, getting fat and losing touch with its true customers due to an unfettered monopoly revenue and profit stream from its cash cow products.

    That post was exactly two years ago. Let’s peruse the MSM headlines from yesterday…

    Microsoft unveils Surface tablet to rival iPad CNNMoney‎ Microsoft will sell its own tablet, called the Surface, designing its own PC for the first time in its nearly 40-year history.

    Why Microsoft’s Surface Tablet Shames the PC Industry Businessweek

    Microsoft usually begs for attention. On this day, it played the cool maestro. In fact, the company played the Apple (AAPL) role, using pomp, circumstance, and constructed anticipation to make us believe that something really fantastic would appear. Perhaps the whole thing worked: Something that did seem rather fantastic arrived at about 4:20 p.m. It was the Surface tablet—a computer that had all its software and hardware made by Microsoft. In that moment, Microsoft became not just a competitor to Apple but also a rival to such longtime PC manufacturing partners as Hewlett-Packard (HPQ), Dell (DELL), and Acer (2353:TT).

    … Let’s be clear, though: Microsoft making hardware is not a natural action. It’s what the company does in times of desperation. With the release of Windows 8 looming, Microsoft was indeed desperate for a hardware company to do something to blunt Apple’s runaway tablet machine. The Surface tablet represents an indictment of the entire PC and device industry, which has stood by for a couple of years trying to mimic Apple with a parade of hapless, copycat products.

    Rather than complaining, PC makers ought to take note of what Microsoft has produced. It has one tablet—a 9 mm thick, 1.5 pounder—that will run on low-power ARM chips and arrive around October. The black device has beautiful, beveled edges; its shell is made of what Microsoft calls vapor-deposited magnesium, or VaporMg. (Brushed aluminum is so last year, Apple.) It also has a built-in kickstand. Best of all, the device comes with a cover that locks firmly in place, unlike Apple’s flimsy iPad protector, and which functions as a proper keyboard. Both the kickstand and cover-cum-keyboard seem such obvious ideas now that we’ve seen them, yet the great army of PC makers failed to think up anything so clever over the past two years.

    Later, a slightly bigger Surface tablet will arrive to run on an Intel (INTC) chip, with a stylus and an even-sturdier keyboard/cover. Workers will be able to run all their Windows 8 software and previous Windows applications on this device, while the thinner one will support a more limited set of software—it uses a chip architecture more common to smartphones than PCs.

    Microsoft’s ’Surface‘ tablet aims for productivity Microsoft unveiled a new tablet computer,Surface, that attempts to take advantage of one of the few criticisms of Apple’s

     I have had a pretty strong track record in calling this mobile computing war thus far, hence it would make sense to take these cautions to heart…

    Hindsight Is 20/20, And As Luck Has It Our Foresight On Research in Motion Was Right On The Money Two Years Ago

     

    BoomBustBlog banking and tech research has been quite prescient for 2010/2011. Subscribers who took advantage of this deserve kudos. To wit, and as excerpted from Another RIMM Job? It’s Amazing How Many Institutions Don’t Read The BoomBust!

     

    Let’s try this again: As Forecast Last Year and Clearly Demonstrated This Year, Research in Motion’s Problems Are Far From Over

     

    Research in Motion has been one of the most successful tech shorts of this blog’s history (thus far). We first recommended a short last year and reiterated it in the fist quarter of this year. Reference:

     

    1. BoomBustBlog Research Performs a RIM Job!
    2. BoomBustBlog’s Fundamental/Forensic Analysis of Research in Motion Has Returned 2x-3x Original Investment This Year!!

     

    This is a snapshot of RIMM as of the writing of this article…

     

    image002

     

    As you can see, the results have been spectacular, particular if well timed puts have been put to use. In January I posted:

     


     

    Google_apple

    Industry Leading, Subscription Based Google Research

    All paying subscribers should download the Google Q1-2012 Valuation Summary, wherein we have updated the valuation numbers for Google using a variety of metrics. Click here to subscribe or upgrade.

    Google still exhibits the likelihood that they will control mobile computing for the balance of the decade.

    Subscription research:

    file iconGoogle Final Report 10/08/2010

    A couple of bits from our archives…


    There are currently 7 Google reports available. Select the “Google Final Report” and click the “Download” button. You will receive a 63 page analysis that looks like this on the cover…

    The table of contents outlines how we have broken Google down into distinct businesses and identified both the individual business models and the potential revenue streams, as well as  valuation for each business line.

    Page 57 of the analysis shows a sensitivity table which outlines the various scenarios that can come into play and how it will change our outlook and valuation opinion.

    Professional/institutional subscribers can actually access a subset of the model that we used to create the sensitivity analysis above to plug in their own assumptions in case they somehow disagree with our assumptions or view points. Click here for the model: Google Valuation Model (pro and institutional). Click here to subscribe or upgrade.

    Fresh and Very Accurate Apple Research

    For all of those near fanatics who do not subscribe, I suggest you ask a friend who does subscribe to share with you the difference between last month’s valuation note target price (page 10 of File Icon Apple Margin & Valuation Note) and the price of Apple today, the day after earnings (click here to subscribe).

    As excerpted:

    It is worth noting that the key assumptions that underline the above valuations – (1) iPhone continuing to witness stupendous growth *******  in 2012 and ****** 2013 over a larger base and (2) iPhone margins continue to remain healthy off stable prices and despite increase in material cost – should be keenly watched over the next couple of quarters. 

    Then ask them bout the logical argument behind the concern with Apple and the extremely volatile price action of the last few weeks. As stated many times in the past, The BoomBustBlog argument and analysis is solid.

    What else is there to the earnings announcement? Well we were absolutely correct in terms of the oncoming margin compression of the the product lines, something that was actually easy to see coming but many refused to admit. Of course, there will be those select few that say, “But wait, the company reported an INCREASE in margins while you said there will be a decrease!“. Yes, that’s true and both can exist simultaneously.

    Apple_2Q2012_results_analysis_Final_Page_2

    Apple_2Q2012_results_analysis_Final_Page_3

    Apple_2Q2012_results_analysis_Final_Page_4

    Images: Flickr (licence/attribution)

    About The Author

    Reggie Middleton is an entrepreneurial investor who guides a small team of independent analysts to uncover truths, seldom if, ever published in the mainstream media or Wall Street analysts reports. Since the inception of his BoomBustBlog, he has established an outstanding track record

Advertisement

Closed Comments are currently closed.