This Should Be a Good Time for Microsoft. It's Not.
These should be good times for Microsoft (MSFT).
The world's largest software company announced on Tuesday that it would be opening 30 "pop-up" stores, temporarily more than doubling its retail concept store presence through the telltale holiday shopping season.
It's easy to see why Microsoft is going on the offensive. October's going to be a very big month for the company as new PCs and tablets with Windows 8 hit the market just as the first wave of smartphones running Windows Phone 8 hit wireless carriers.
Unfortunately for Microsoft, the buzz just isn't there.
The Blue Screen of Death Returns
I questioned Microsoft's chances for a return to greatness last summer, but at least then there was hope that either PC sales would bounce back with the global economy or that the company would find a way to slow Apple (AAPL) and Google (GOOG) from running away with the tablet and smartphone markets.
Things don't look so hot on either front these days.
Hewlett-Packard (HPQ) just announced that it would have to lay off more employees than it originally announced. Why would HP -- the world's largest computer maker -- start handing out pink slips just weeks before the arrival of the Windows 8 systems that were supposed to trigger a new upgrade cycle?
Oh, that's right. Folks just aren't buying computers.
Dell (DELL) reported a 14% drop in PC revenue in its latest quarter, and Hewlett-Packard followed a day later with a 10% slide of its own. Box buffs argue that folks are simply holding back on buying new PCs and laptops ahead of Windows 8, but skeptics know better.
Folks just don't need Windows-fueled computing devices anymore. Sure, hardcore gamers and folks that require sheer computing power for work still need PCs. That won't change. However, now that everything from software applications to media files are being stored on the cloud it's all about portability and connectivity. Tablets and smartphones do the trick for most people.
Phoning It In
Microsoft's solution to stop Apple's iOS and Google's Android from taking over the mobile market was to throw money at the problem -- a lot of money. It agreed last year to pay Nokia (NOK) billions to back its mobile operating system.
How well did that play out? Nokia hit the market with the Windows-fueled Lumia smartphones back in April. They didn't do so well. The new handsets running Microsoft's Windows Phone 8 won't do much better now that the iPhone 5 has been released.
According to industry tracker Gartner, iOS and Android have gone from cornering a combined 65% of the global smartphone market a year ago to an even thicker 83% chunk today. Microsoft isn't getting it done.
The Future Looks Dim
The market knows that Microsoft doesn't stand a chance in mobile. Nokia has seen its stock nearly cut in half over the past year. However, Microsoft's own stock has climbed 22% higher in that time.
Will PC sales save the day? No. Beyond HP expanding its layoffs, PC industry watchers warn of sluggish performance by box makers in the future, even with next month's arrival of Windows 8.
Even analysts are sobering up. Three months ago they were expecting Microsoft to earn $3.08 a share this fiscal year and $3.36 a share next year. Now those same prognosticators are settling for a profit of $3.01 a share this fiscal year and $3.30 a share in fiscal 2014.
Where will the catalysts come that may change that? Microsoft's Xbox is now the top video game console, but that industry has been sluggish for years as mainstream players gravitate to cheaper social and casual games. There's still positive hype surrounding Microsoft's upcoming Surface tablet, but this is going to be a crowded marketplace this holiday season with the new Kindle Fire HD, Google's dirt-cheap Nexus 7, and Apple's industry-leading iPad fighting for attention.
I'm sorry, Microsoft. Things just aren't looking that great for you.
Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Microsoft and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Google, and Microsoft. Motley Fool newsletter services have recommended creating a synthetic covered call position in Microsoft and a bull call spread position in Apple.
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