Microsoft - all in the outlook

(By Richard Holway 9.00am Monday 26th Oct 09) Sometimes it feels a little strange to report a pretty massive (c8%) rise in a company’s share price when they have just announced what, at the headline level, was the worst performance in its history. But that’s what happened to Microsoft last week when it announced its Q1 results showing profits down 18% to $3.57b on revenues down 14% to $12.92b. See FT 23rd Oct 09 Microsoft’s earning beat forecasts.

It’s all in the outlook. Analysts seem to think that Windows 7 will boost demand and that even enterprise IT spend will rebound in 2010. I have problems here. Firstly, anyone upgrading from XP to Windows 7 is in for a lot of pain. I wouldn’t advise it. So the outlook for Windows 7 really relies on the new kit market. Here, Windows 7 is just one option. Apple, Google etc have growingly viable alternatives. Netbooks are the order of the day but Microsoft cannot succeed by the reduced revenues it will get from that sector alone. Smartphones are yet another alternative which could rob Microsofft of marketshare.

Microsoft’s outlook depends on enterprise IT spend. Not so much an increase but that enterprises will continue to spend with Microsoft. As you can read in my Gone Google post below, enterprises have new non-Microsoft options. Frankly, I think the analysts are being too optimistic calling an end to Microsoft’s woes just yet. Indeed I think Microsoft is entering the most vital period in its history.