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Software Giant Microsoft Has To Solve Big Problems

Earnings of the company are still strong but the divisions suffer under ongoing headwind. Microsoft needs to reinvent itself.

A sales increase of 13 percent to USD 16.43 billion within the third quarter of fiscal year 2010/2011 and an increase in earnings per share of 31 percent to USD 0.61 should be a solid performance. Nevertheless, Microsoft (NASDAQ:MSFT) has solved none of its operational business problems. The online business of the world's largest software company recognized a minus of USD 726 million. Those are still huge losses. Microsoft’s smartphone business is still on the ground and the conquest of the digital music market with the companies own player "Zune" as an iPod's rival failed. Now, Microsoft's most important division - Windows - reported a sales decline of around four percent on last year. This corresponds with the recently published figures for the personal computer market for which a decline of 3.5 percent is called.

That would not be so bad if the world had not turned further. More and more people are working on the internet with techniques that do not need Windows support. There are tablet computers, smartphone’s, and browser or app-based online services like Google Docs, drop box or Evernote. The next wave of services will come when Google’s operating system Chrome meets the laptop market, and HP launches its webOS.
Windows 8 comes in 2012 and should be run on additional processors as Intel's x86 which dominate the PC market as of today. Many of these chips do not power Tablet PCs. Microsoft CEO Steve Ballmer has therefore no other choice to launch Windows 8. The second major cash cow of the company, the Office application, stands and falls with Windows as base system. It must be rescued quickly into the tablet world if the smartphone market is already lost.

Even optimistic forecasts of consulting group Gartner approves Microsoft by 2015 a market share of 30 percent if the cooperation with Nokia succeeds. But 30 percent would be nothing compared with 90 percent market share that Windows had in heydays within the PCs market. In Core markets will this only a fight under equals with Apple (NYSE:AAPL) and Google (NASDAQ:GOOG). No rosy prospects.

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