August 22, 2012

A SWOT analysis: Can the once mighty Microsoft rise again?

Microsoft just lost a world-record to Apple. Microsoft was valued to $619 billion during the last tech bubble in 2000, and the current value of Apple is $623 billion - so Apple is the most valuable publicly traded company of all time (IBM was worth $1.3 trillion in 1967 if you adjust for inflation). Microsoft seems to lose more and more of their market shares to competitors. Google's web-browser Chrome is the largest web-browser - Microsoft Explorer has the second place. Is Microsoft the next large tech company to fall into the graveyard of the old once mighty forgotten companies? To find out, one way is to make a SWOT analysis of Microsoft. If you want to learn more about SWOT analysis, you can also visit this SWOT guide

Microsoft ($MSFT) Stock Chart

  • Microsoft is the number 1 in the following areas:
    • Xbox 360 - 47 percent of the market before Playstation 3 and Nintendo Wii
    • Office - 94 percent of the market 
    • Windows is the largest operating system in the world - 92 percent of the market before Apple with 6 percent
  • Microsoft may not always be number 1, but they are number 2:
    • Explorer is the second largest web-browser - behind Google Chrome
    • Bing is the second largest search engine - behind Google
  • Sometimes you don't have a choice. If you are buying a PC today, you are going to buy it with Microsoft Windows pre-installed. If you are working at a large company, you are going to use Microsoft Office
  • Microsoft is a company with a high financial strength:
    • Distributes a dividend 4 times each year - currently $0.23 per share
    • Are buying back shares -  the 2012 outstanding shares have decreased by 16.6 percent since 2006
    • Revenues in 2012 have increased to $73,723 million from $44,282 million in 2006
    • Earnings per share in 2012 have increased to $2.72 from $1.2 in 2006
  • Next generation products such as Windows 8 and Xbox 720
  • Microsoft has just changed its corporate logo

  • Lack of innovation. Microsoft and Facebook both spent about $1 billion. Facebook bought Instagram, and Microsoft bought patents
  • Lack of innovative company culture. The employees are competing with each other - not with other companies - thanks to the management system inside Microsoft that says that everyone in a group can't be top performers. Each unit is forced to declare a certain percentage of employees as top performers, good performers, average, and poor - no matter how good they are. One of the employees said: "It was always much less about how I could become a better engineer and much more about my need to improve my visibility among other managers."
  • Bugs - Microsoft has a reputation for making software with bugs. Everyone can remember when Bill Gates made a presentation and the famous blue screen appeared. Go and check it out here if you have missed it: YouTube. Have you ever seen a similar presentation by Apple? The problem with creating a software such as Windows is that Windows has to be compatible with computers from different manufacturers. It's easier for Apple to create software without bugs since they are manufacturing their own computers
  • No dedicated users. Apple users loves to show that they are using Apple devices, but who's proud of using a device from Microsoft?

  • Customers in emerging markets tend to buy PCs 

  • Microsoft is a PC company while more and more people are shifting to mobile and tablets. They are trying their best with Surface - their own tablet. It's hard to compete with Apple today since you also have to compete with iTunes Store with millions of apps. If you create a better iPhone competitor, people are still going to use the iPhone because of all the apps available 
  • Open source models:
    • Libre Office is free and as good as Microsoft Office if you are only using the basic functions
    • Ouya - the open source Android video game console may be a low-cost competitor to the Xbox

Confused? If you are still confused, you might be interested in this article:
How to invest like a Venture Capitalist in uncertain technology companies like Facebook and Google.

Source: The Motley Fool, TechCrunchWikipedia, YouTube, Search Engine Watch, VG247, DailyTech, Wikipedia, Forbes, Vanity Fair, The Seattle Times, SeekingAlpha

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