Microsoft Corporation (NASDAQ:MSFT), once the world’s most valuable company, is attempting to reinvent itself this year with the release of its Windows 8 Operating system, and a slew of mobile and hybrid devices running it.
According to ThinkEquity LLC, the release of those devices will not necessarily be a slam dunk for the company. A recent report penned by ThinkEquity analyst Yun Kim puts a twelve month target price of $31 on the firm’s shares, unconvinced of a successful Windows 8 launch.
Nomad Capital: Looking For Businesses That Want To Get Better Every Day
The Nomad Investment Partnership had one of the best track records in the hedge fund industry during the first decade-and-a-half of this century. Q3 2020 hedge fund letters, conferences and more Run by Nicholas Sleep and Qais Zakaria between 2001 and 2013, the partnership yielded a total return of 921.1% after performance fees for investors Read More
The major issue with the launch, according to the analyst, will be the pricing of devices released with the new operating system. Of particular concern, is the pricing on the lower cost mobile devices that are set to run Windows RT, designed for ARM architecture processors.
The higher end tablets that the company is set to offer, will almost certainly suffer from competition with Apple Inc. (NASDAQ:AAPL). The competition represented by the Cupertino company will be violent, given Apple’s invention of the product category and the rivalry between the firms.
Microsoft Corporation (NASDAQ:MSFT) products are entering a market place that is not yet saturated, a plus for the company, but one in which there are only two major players. Amazon.com Inc (NASDAQ:AMZN) controls the lower end of the market with its Kindle Fire, while Apple has an iron grip on the higher end of the market, with the market leading iPad.
The company’s future is certainly hanging in the balance with this launch, if it is a huge failure, the company is likely to enter almost irrevocable decline. Mobile computing is the future, it’s already biting into sales of PCs, Microsoft needs to get into the game.
If the company is to be successful, it is likely to be among the lower end devices. This means the margins for both Microsoft and OEMs are likely to be less. The Kindle Fire’s branding is nowhere near as strong as the iPad’s, and the device is almost non-existent in international markets.
In that regard the devices strengths prove to be its major weakness. Amazon is able to sell its device at such a low margin, because it locks them into purchasing content from the company. The legal and financial issues associated with licensing content across the globe are preventing a worldwide release.
Microsoft does not suffer from the same content restrictions, but will not gain nearly as much revenue from sales of its devices, as a result. In their report, ThinkEquity predicts that the company will quite possibly see strong unit growth with much lower revenue growth.
Microsoft Corporation Investors (NASDAQ:MSFT) need to make themselves comfortable with this reality. In the next year or two the company will be concentrating on building its brand in the mobile device world. The company has been gifted an entry point into the mobile phone market with the verdict on Samsung’s patent dispute with Apple Inc. (NASDAQ:AAPL).
There has never been a time when Microsoft’s product slate looked as exciting as it does right now. The company is finally offering something different. That at the very least has to be commended.