IBM passes Microsoft’s market cap
money.canoe.ca
money.canoe.ca
Why should they care about their stock price? It's not like they're in dire need of a stock emission. They have a cool $20 billion in annual profit flowing in. Their employees won't mind that much either, since a low stock price means they get more shares and with a P/E ratio of under 10 they're likely to go up eventually.
Ultimately, they should care about the stock price because raising the stock price (or, more directly, the value of the company) is what we (the shareholders) pay them (the management) for.
"Here you go" say the shareholders (via the board) to the management. "Here's a freaking huge salary. Now go find ways to make my company bigger."
That doesn't mean they should care about day-to-day fluctuations in the share price, but certainly ensuring long-term growth in the share price is exactly what we're paying 'em to do.
(And I don't know why I used "we" all through there, because I'm not actually a MSFT shareholder.)
Actually I'm looking at the historical MSFT price right now, and it's interesting. Of course they had huge growth in the 90s, hitting twice its present value at the end of '99, before rapidly crashing back down to its present value by 2001. It's been flat ever since. In 2003 the company said "Screw it, we might as well pay dividends" and they've been putting out a slowly-increasing dividend ever since. Other than that, the lack of change over the last decade has been remarkable.
Interestingly, 2000 was also the year that Ballmer replaced Gates as CEO. Maybe what Microsoft really needs is a CEO with some vision.
It is a signal that MS is not using its dominance to get into new markets, grow products, and generally be an competetively active business.
Two interesting questions: Are there big tech companies that you wouldn't say that about? Why doesn't it matter for those companies?
IMO, it's reasonable to have a slow-growth company in a mature market that pays a nice dividend (Microsoft's should be higher though).
The danger is that Microsoft's utter dominance is getting chipped at from the margins. Are small companies or individuals buying Office like they once did? Is Apple's growth in the tablet space eventually going to put a bullet in the traditional PC?
Call me naive, but I have a really hard time seeing the traditional PC going away. Tablets just aren't cheap or versatile enough to replace PCs.
I work in a big enterprise IT shop with tens of thousands of PCs. We have management software that meters application utilization. 85% of application runtime on PCs is devoted to: Microsoft Word, Outlook and IE. Most of the other 15% are in-house apps, with a long tail of various tools that people use.
Yet the per-seat cost of a desktop is over $100/year for basic licensing, $75/year for Office and about $250/year for hardware, assuming a 4-year refresh cycle. For 10,000 people, that's $4.25M of annual cash flow just to provide clients to workers -- no infrastructure costs, no operational staff costs. (Those costs are easily $50-100/seat, depending on the org)
That's a ridiculous amount of money. So there's a huge opportunity to offer a solution that improves productivity by hacking away at that cost. Compare the management features of an iPad/iPhone/BlackBerry to ChromeOS -- they are nearly identical. Lower labor costs plus less licensing means enterprise adoption. Technically, the solution just needs to be "good enough".
Retraining costs associated with switching to a different platform would be approximately an order of magnitude higher - i.e. you're looking at > 10 years to break even assuming zero cost for the new system.
I've spent a ton of time migrating people from different mail platforms to a single, larger platform. When people fight to hang on to Lotus Notes or GroupWise, they make statements like that and roll out scary cost figures, etc.
At the end of the day, you train the admin assistants, a few key users, etc for 1/10 of the cost the people estimate. After the first week of chaos, you start hearing from regular users how much better the new system is.
Millions of people figure out how to use iPads and GMail without any documentation, IT department or training classes. Enterprises are no different.
Think about it. How many work patterns actually amount to writing down information, then going to a workstation and transferring the data? Lots.
Further, they aren't meant to replace PCs. That's not the "bullet" that the parent was talking about. The bullet is that we no longer need to buy one for every room just to take advantage of their basic functions. The supply has reached commodity status while the demand is being replaced.
Ah, but it could be. There are plenty of other markets left to dominate under Microsoft's general heading of "we make software for stuff", especially if they don't mind making hardware too (see Zune, Xbox).
If they're worried about the tablet market, why not create their own tablet? Why did they make one attempt at the iPod market and then give up? Why aren't they pushing their Windows Mobile harder? Why aren't they doing more to go toe-to-toe with Apple? They have fifty billion dollars in cash, why not do something with it?
There are tons of connectivity issues they can solve, or help solve through 3rd parties. This is also what Near Field comms are about.
Think about it. Microsoft is handcuffed by their success, because anything that threatens the holy trinity of OEM Windows Licensing, Office and corporate EAs is not going to be successful. The impact to short-term bottom line is too much...
Look at 1986 IBM again as the example.
Do you want to be the 1986 IBM salesmen who sells some PC-based application system for $500k to a bank... a bank who may replace the IBM PCs with Compaqs in 1988? Or do you want to be the guy who sells a $10M mainframe/software package with multi-year service agreements?
There's many ways to make a buck -- Apple has chosen one, IBM another, and neither is obviously better than the other.
Because they failed to gain a foothold on any growing market. Or even find them before they exploded.
And the few they did (mobile - they took Palm's crown in the early 2000s) they fumbled completely.
But articles like this are a kind of gut-shot: They directly state that investors don't like the stock. This kind of thing can accelerate a stock's fall from grace, leading to more negative articles, more bearish sentiment, and the whole thing becomes a vicious cycle.
This is very different from an article being bearish about the company's management or products. You can hire new managers. You can fix broken product, buy new products, or develop new products. But you can't buy investor confidence (as Microsoft has proven with their dividends).
EDIT: I should point out that this doesn't happen with vicious circles or rising stock prices in any reliable way. Well, people shorting the stock can have sort of the same effect but not as well.
Some companies manage to get by on investor's hope for future huge dividends someday without ever having to issue any right now, like Apple, but I don't think its a loss for society is investors lose their confidence in "someday" and start forming their expectation based on past performance. So I guess I'm saying that to the extent that negative articles can and do drive down a company's stock price those of us who haven't invested in them should be happy.
I'm sure much of that has to do with not just failed products, but a lack of fortitude in sticking behind products, advertising them effectively (building the brand) and growing them into the "next big thing".
Perhaps not a bad CEO, but the wrong CEO for this company right now. He'd probably do better at a place like GE.