Microsoft a game changer?

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The equity markets are in that testing zone. After a good move higher after the better than expected Labor Report, but not “too good” to end the Fed’s “easy monetary” policy, the market is now paused just below those highly touted levels. We can certainly break through them and most likely will, yet we will most likely see a little profit taking (longs selling) as well as a few shorts (Bears) attempt a position at these levels. This whole game is why we have resistance and support levels. There are areas of pause, accumulation and liquidation. Some of these levels are driven around big whole numbers that mark a new high or low, some are driven after a period of stagnation, other are created from huge turn over. Regardless, we are at some big numbers that the media has been watching and I have already heard from a friend (not in the market) “Hey, what do you think about the Dow Jones at 15,000?” The media touting these levels could certainly bring in more optimism and speculation from many on the sidelines, maybe which will help push it higher. Maybe Microsoft (MSFT) could be a game changer to help push the market higher?

Microsoft a possible game changer!

Courtesy of wikipedia

The history

My history in computers really started with my Apple ][, at one point I even became a hacker, with my notorious AppleCat modem (1200 baud). My first job was selling computers at Computer Land. For me it was Apple or “Go Home!” Then in the NAVY, I started using MS DOS PCs. The NAVY systems and data bases that I used all required me to learn a whole new operating system. Later when I started as a clerk on the trading floor, again I used MS DOS. The only Apple and MAC users I knew back then were either in the education field or a fan boy. Back in the early 1990s it was Microsoft that dominated and expanded quickly. All the real work related software was designed for Microsoft first and only IF successful on the MS operating system/s was it ported over to MAC. I even remember when I started working on the trading floor, one of (if not the biggest) trading pits was Microsoft. The stock seem to be on a long and steady march higher in the 1990s, seemingly to split every couple of years, and was really the only big swinging tech stock before tech stocks became cool during the Dot.Com era. Meanwhile Apple was about to fail, seriously fail, it was so bad at Apple that their big rival, Bill Gates, in almost a pity-party of charity invested $150 million in stock (I believe NON-voting shares). I think Bill Gates was hoping just to keep Apple on life support, because if Apple went under the evil eye of the Justice Department could look at Microsoft as a monopoly.

Microsoft loses their way..

Zune / Microsoft
Courtesy of wikipedia

However, something changed at Apple, it was Steve Jobs. Jobs knew that there was no way to go toe-to-toe with the Microsoft machine, it was foolish. Microsoft had been so deeply rooted into the business world, that to try to pry it out would be too costly. Jobs instead focused on the personal/social value in technology. As Microsoft and Bill Gates scoffed at the internet and the world-wide web as some fade (I personally think Bill Gates forgot his roots), Jobs embraced it. First came the iPod and that needed software and then a service, iTunes. Then came the iPhone and that too needed software, Apps. Then the iPad revolution spawned the tablets. In 10 years the computer market intertwined with the personal-social market and Apple was the right there, not only the heart of the rise but also the innovator.

In the last couple of years I heard that Microsoft was dead. Bill Gates had been gone, managing his Gates Foundation and the CEO, Steve Ballmer was losing popularity and also respect in the industry. He seemed stuck in the old ways and not really embracing this massive personal/social growth market that Apple had turned into the tech gold mine. Microsoft seemed to become the reluctant follower with crappy half-ass attempts to enter the market. I just found it amazing that a massive company like Microsoft would fail over and over trying to enter the market. It was like they did it because it was expected of them and the heart and innovative risk wasn’t there. The ZUNE, an iPod copy-cat, continues to limp along in fits and starts, at one point almost abandon. It was as if the Zune was invented just to say that Microsoft was in the market. Microsoft did have one success outside their core business, the X-BOX. So we know they can do it, but the real gold mine of personal/social computing was still squarely in Apple’s wheel house and Microsoft just couldn’t take a serious chunk out of the market share. I suspect that Microsoft was so whetted and married to their core OS market, which was driven by PC sales.

PC market dies...

Nothing lasts forever, again a big change in the industry happened. It wasn’t any one thing, but a culmination of many happening at once. The PC market turned into a commodity market. Prices dropped rapidly and that meant margins declined, it was a tough business as R&D was eating into the bottom line in a market where margins were getting thinner. This initially hurt Microsoft, because Microsoft had to constantly renegotiate pre-loaded OS sales with their PC partners.

Then a second blow hit the PC industry recently, PC sales started to decline and sharply. IBM was smart and exited the PC business early, selling to a Chinese company, Lenovo. However, the left-overs, Dell, HP, Gateway, and others were treading water. They quickly looked to get gobbled up, merge, sold or their only alternative was to reinvent themselves. Dell is currently in an unusual battle with shareholder, activist investors, hedge funds, and the CEO to try to go private. HP has constantly try to reinvent themselves with new product lines. This again started hurting Microsoft sales.

A third blow came as we saw a huge rise in Apps for tablets and now Cloud Computing. This further eroded sales into the personal PC market. Mid-size to big business again started turning towards the server based architecture to develop their Cloud based application. There was no need or rush to update their PC computers or get the latest and greatest Windows OS.

The decline in PC sales came as individuals made lateral moves to note-books and then net-books and tablets. Individuals didn’t need the horse power of Microsoft OS to run CPU hogging software. Apps sales rocketed as PC sale software of similar nature declined. While Google’s Cloud Based free office software hasn’t dominated the business world, more and more personal users are using Google Docs rather than installing Windows Office. A recent trend showed that college students have been moving quickly towards cloud based applications, like Google Docs and online storage. Remember college students are starving, they need to write a paper – so why not use Free Google Docs?

I heard many imply it was the end of Microsoft, with old-school Ballmer at the helm and Microsoft’s repeated failure of ever making a significant step into the personal/social computing market.

Microsoft makes a comeback?

Then Steve Jobs passed away and Apple fell from grace, troubled with infighting management, several product mistakes, and back-lash in marketing in China, cannibalizing sales, and not rolling out the next greatest new product. Google and Samsung started rapidly stealing market share, yet Microsoft remained silent.

Microsoft’s new Windows 8 was released, but the initial marketing of what it is supposed to be fell flat on its face. Windows 8 was not just a new OS to just replace Windows 7, it was a new hybrid OS to operate in BOTH WORLDS, the CPU heavy application desk top world and ALSO the tablet based-touch screen world. It was a brilliant idea, but could it be executed and also marketed correctly. Well I think they nailed the concept, from my experience. However, the marketing hasn’t really been a success and there is still questions about their execution (expect updates).

The new Microsoft “SURFACE” product has been doing better of late and their commercials seem Applish with their music and dance routines. It is a nice product, but the problem is that with all their dancing and clicking and tom-foolery commercials they haven’t really explained what is coming and why it could be a game changer for Microsoft and the industry. It could very well bring back many to the Microsoft family, but that requires a solid and semi-educational marketing effort.

For those that don’t know what this Windows 8 hybrid-product and “Surface” tablet is, well it is pretty simple. On one hand it is as tablet – touch-screen operating system, similar to Google’s Android and Apple’s iOS. However, by clicking one button you can quickly drop back into the traditional Microsoft Windows environment. What “Surface” can be is either a touch-screen tablet or a full-fledged lap-top.

The new "All-in-One"


This new Windows 8 hybrid product has also spawned an entirely new home PC market, the “all-in-one”. If you head into any Best Buys you can see what I am talking about. If you walk into the area which use to be where all the desk-top computers are, they are gone. Now it just looks like a row of monitors, touch screen monitors. Quickly you will see that these are NOT monitors, but an all-in-one full-fledged computer. The back of the screen, about 1-2” thick, is the computer. What is interesting that in one mode you operate this monitor just like a tablet, with Windows 8. Then with a key-board and mouse, you can continue to use the touch-screen/tablet mode or jump back into traditional windows mode. These touch screens are big and also act as a media center. With one click of my finger on the screen, I was watching a movie on Hulu, then I touched the screen stopped it, swipe of the finger I was checking the market. Frankly it is a brilliant move for Microsoft and brings two new innovations to the market, a hybrid-tablet/note-book and a desk-top/touch screen.

Microsoft stole a page from Steve Jobs’s bible, don’t duplicate, innovate! It is the first time, in a long-time, that Microsoft is attempting to innovate and create a new market. It has, to some extent, also help revitalize the dying PC market as Dell, HP, and others are now making these “All-In-One” computer/touch screens.

I suggest heading to a Best Buy and playing with one, understand the technology and take the time to think – is this a possible game changer in the personal/social computer market?

Microsoft is making a billion dollar bet with Windows 8, Surface, and the “All-In-One” – I think it could work and in fact I am sold. I will most likely be picking one up in the very near future. So far it seems to be working, Microsoft had solid earnings, with revenue increases on a year-over-year basis and bottom line profit beat. The stock rocketed from $29 to $33. Is this the beginning of the rebirth of Microsoft? We should certainly pay attention.

Bill Gates - Microsoft
Courtesy of wikipedia

Here is Bill Gate’s thought on Microsoft’s attack on Apple: Bill Gates on Microsoft's Attack on Apple See 7 mins into the video.

"With Windows 8, Microsoft is trying to gain market share in what has been dominated by the iPad-type device. But a lot those users are frustrated. They can't type. They can't create documents," he added. "So we're providing them something with the benefits they've seen that has made that a big category but without giving up what they expect in a PC."

"If you have Surface or Surface Pro, you have the portability of the tablet but the richness of terms of the keyboard, Microsoft Office of the PC," said Gates, referring to Microsoft's tablet.

But a major release is not without issues, this morning Microsoft is announcing an update/face lift to Windows 8.

Support & Resistance

INDU 15,000
We are right there, ready to break through. We have seen a little profit taking and a few Bears step-up and take a shot. However, not even bad news had sent this market lower. Couple that with the Fed keeping the treasury market unattractive, well I don’t see why we can’t go higher.

NDX 3000
Could Apple (AAPL) rebound with the dividend, bond, and buy back get this index through 3000. What about Microsoft (MSFT) with its recent rebound. Google (GOOG) will be releasing GLASS as well. We could see this index break above 3000 and even go higher.

SPX 1600
The SPX broke above, which created some fanfare, but now it is waiting for the rest of the indexes to break-through and go higher. The VIX is dropping, now in the mid 12s. I suspect that it will drop to 11 and maybe into the 10s. At that point it is worth being concerned. So far the market continues to shrug off any bad news or concerns.

RUT 950
The RUT broke about above 950 and this is very important as it shows broad-based order flow heading into the market. Similar to the SPX it is waiting to see if the two narrower indices follow suit. Could we be ready to see a new surge in equities, again? There is really no where else to invest. The market doesn’t seem to care about fundamentals, it is becoming the only store value in town and as more crowd in it will only push the equity markets higher.

What could spur another mad dash into equities was Warren Buffet’s statement yesterday about treasury bonds. Frankly, for a Democrat and Obama supporter – he pretty much tossed the entire government and Fed monetary policy under the bus and it was certainly a back-handed comment. I think Warren Buffet’s game is to be that friendly old man, but deep down inside he is getting fed-up with this Keynesian and Socialist ideology, which has gone far beyond what he even imagined. He has previous stated concerns about inflation as well.

Buffett on Treasuries
Courtesy of wikipedia

Video: Buffet on Treasury Bonds - Terrible Investment

“[bonds] are a terrible investment.”

“…bonds are priced artificially, you got some guy [Bernanke] buying $85 billion a month…[laugh]…that will change at some point, and when it changes people could lose a lot of money if they are in long term bonds.”

Buffet is right, this is also the reason the equity market is rallying, despite of domestic economic, earnings disappointment, and geo-political volatility. Equity market remains the only place to be, right now.

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