Tuesday, 14 December 2010

Microsoft as the modern day Titanic; we all know how that ends | ZDNet

Microsoft as the modern day Titanic; we all know how that ends

By Sam Diaz | December 13, 2010, 1:45pm PST

Summary

Wall Street is sounding the warning bells over Microsoft’s future, concerned that tablets are overtaking PCs and that Microsoft hasn’t acted fast enough to keep up with trends, technologies and competitors.

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Larry Dignan

Larry Dignan

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CNET News.com. Larry has covered the technology and financial services industry since 1995, publishing articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism and the University of Delaware.

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Sam Diaz

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Sam Diaz

Sam Diaz

Sam Diaz is a senior editor at ZDNet. He has been a technology and business blogger, reporter and editor at the Washington Post, San Jose Mercury News and Fresno Bee for more than 18 years. He's a member of the National Association of Hispanic Journalists and a graduate of California State University, Fresno.

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Andrew Nusca

Andrew Nusca

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Andrew J. Nusca is an associate editor for ZDNet and SmartPlanet. As a journalist based in New York City, he has written for Popular Mechanics and Men's Vogue and his byline has appeared in New York magazine, The Huffington Post, New York Daily News, Editor & Publisher, New York Press and many others. He also writes The Editorialiste, a media criticism blog.

He is a New York University graduate and former news editor and columnist of the Washington Square News. He is a graduate of the Columbia University Graduate School of Journalism. He has been named "Howard Kurtz, Jr." by film critic John Lichman despite having no relation to him. A native of Philadelphia, he lives in New York with his fiancee and his cat, Spats.

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There’s a scene in James Cameron’s Titanic that serves as a good analogy to Wall Street’s feelings about Microsoft these days.

In the movie, the lookouts who spotted and reported the iceberg are at their posts looking straight ahead at the iceberg when one asks, “Why aren’t they turning?” Of course, the orders have been given to steer the ship away from danger - but a big ship like the Titanic doesn’t just make a hard left turn. It takes time for something that big to move to another course.

As we all know, the end result is a sinking ship.

Over the weekend, Goldman Sachs analyst Sarah Friar sounded the alarms in a research note suggesting that Microsoft’s lack of a plan for a tablet PC will push the company into slower revenue growth, from 12 percent in 2010 to 7 percent in 2011. (Techmeme) TechFlash picked up the research note and noted that, while the Windows team is reportedly beefing up the touch screen technology in the next version of Windows - not expected until 2012 - the company still lacks a dedicated tablet product group. The blog quotes from Friar’s note:

A tablet response is still not forth-coming and our early read on Windows Phone 7 has not yet changed our view that Microsoft’s share in mobile OSes will remain at only the single-digit level. For an unlocking of shareholder value, we continue to look for a more aggressive dividend, a more focused consumer strategy, and stronger Cloud-Azure traction.

Meanwhile, Goldman hardware analyst Bill Shope said the PC business is moving out of a “multi-year period of cyclical trends,” according to a Tech Trader Daily post, and is heading into a multi-year period with “secular” themes dominating. In a nutshell, that upgrade/replacement cycle of corporate PCs has peaked and he estimates PCs will grow about 8 percent next year.

By contrast, he’s bullish on tablets, with 2011 sales estimates at 54.7 million and growing to 79 million in 2012. The blog post quotes Shope’s note:

This rush of iPad competitors is not surprising in itself, as Apple tends to regularly define the direction of the electronic media and computing industries. What is surprising is that many of these products are not utilizing Intel microprocessors or a Microsoft operating environment. [W]e expect the vast majority of these devices to run the ARM architecture with either iOS or [Google's (GOOG)] Android as the operating environment. If this is the case and our tablet forecast is anywhere near accurate, this would be the first time in three decades that a non-Wintel technology has made legitimate inroads into personal computing.

Like the Titanic, Microsoft was once the darling among its peers. But unless it starts positioning itself to be more reactive to new trends, technologies and competitors, it too could find itself alone in the middle of the ocean, left to perish because it couldn’t move fast enough.

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Sam Diaz is a senior editor at ZDNet.

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Sam Diaz

Sam Diaz has nothing to disclose.

Biography

Sam Diaz

Sam Diaz is a senior editor at ZDNet. He has been a technology and business blogger, reporter and editor at the Washington Post, San Jose Mercury News and Fresno Bee for more than 18 years. He's a member of the National Association of Hispanic Journalists and a graduate of California State University, Fresno.

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