Microsoft – Which way to jump

Microsoft remains at the strategic crossroads.

• Microsoft held its annual meeting today and held firm to the ideals that the street does not want to hear.
• Microsoft was talking all about taking risks and having money to invest and not about slimming down and focusing just on enterprise.
• The company is at a stalemate and until a new CEO is in place, there it will stay.
• The current (default) choice is to stay with the consumer assets and to become an full blown ecosystem across all devices and use cases.
• The other is to jettison the consumer assets such as Bing and Xbox and to focus on just serving the enterprise.
• This is what Wall Street wants as it sees the other strategy as doomed to failure and hence a waste of time and money.
• The problem is that an about face of this nature will require not just the ejection of Bing and Xbox but of all the consumer assets including things like MSN.
• This would also include the feature phone business of Nokia if not the smartphones as well.
• I believe that addressing the entire ecosystem is the right strategy for growth but it is one that requires a huge personality overflowing with charisma and willpower to execute.
• If Microsoft ever really wants to grow again, it must stick with the consumer business as it is there where the upside is to be found and where market share is lowest.
• Jettisoning these businesses will not be straight forward, which combined with the stated strategy both at Build and again today, reinforces the likelihood that this will not happen.
• Hence I suspect that the new CEO will end up breaking Microsoft down and building it back up so that the separate businesses talks to each other and co-operate in ways they have never done before.
• This remains the future of the company and in my opinion the only real hope for a meaningful rally in the share price.
• Focusing on Enterprise will create a bounce in terms of valuation but EPS growth would most likely remain in the doldrums forever.
• As usual, the right path is the hard path.