Microsoft Is in Crisis, People Should Pay Attention

Moneybox
A blog about business and economics.
July 22 2013 9:36 AM

Microsoft in Crisis

171549202
Microsoft CEO Steve Ballmer speaks during the Microsoft Build Conference on June 26, 2013 in San Francisco

Photo by Justin Sullivan/Getty Images

It's been an awfully long time since Microsoft's been sexy or gotten a ton of buzz, so it's easy to overlook how well it's done in practice. Well, that is, until last week when suddenly all the doubts about the firm that have simmered for years seemed to be striking. Here's a long view of Microsoft's stock:

Microsoft long

The long road up, the bubble of the late 1990s, and then a remarkable stability built on solid, consistent, high Windows/Office-driven profits and steady dividends.

Advertisement

And last week:

microsoft short

That's all about their fourth quarter earnings report where both revenues and profits came in billions of dollars below Wall Street expectations. Even more disturbing, the company acknowledged $900 million of inventory write downs based on Surface RT machines. That's when a company acknowledges, for accounting purposes, that they aren't actually going to be able to sell products they've already built so the inventory doesn't have the value they originally attributed to it anymore. That matters not just because of the $900 million but because of what it says about the company's ability to escape the steady decline of the traditional PC form factor, especially as ultra-cheap Chromebooks start attacking the low end of the shrinking market.

The interesting thing about this is that for all Microsoft's problems it's still a big and enormously profitable company. Its Windows/Office operation is shrinking but lucrative, and its enterprise business doesn't seem to have enormous growth potential but it is, again, quite lucrative. ValueAct, an activist investment management firm based in San Francisco, has been buying up shares and clamoring for a seat on the board as well as a change in strategic direction. Over the weekend, Reuters broke the news that Microsoft is entering serious negotiations over the board seat. But a board seat is rarely just a board seat. Back in April, ValueAct's Jeffrey Ubben explained that his vision was for Microsoft to forget about consumer products and focus on cloud computing, while demanding board seats sure seems like a vote of no confidence in the current management team.

It's a fascinating drama and a striking outbreak of weakness for a firm that less than 15 years ago was widely regarded as an abusive monopoly.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

The World

The Budget Disaster that Sabotaged the WHO’s Response to Ebola

Are the Attacks in Canada a Sign of ISIS on the Rise in the West?

PowerPoint Is the Worst, and Now It’s the Latest Way to Hack Into Your Computer

Is It Offensive When Kids Use Bad Words for Good Causes?

Fascinating Maps Based on Reddit, Craigslist, and OkCupid Data

Culturebox

The Real Secret of Serial

What reporter Sarah Koenig actually believes.

Culturebox

The Actual World

“Mount Thoreau” and the naming of things in the wilderness.

In Praise of 13th Grade: Why a Fifth Year of High School Is a Great Idea

Can Democratic Sen. Mary Landrieu Pull Off One More Louisiana Miracle?

  News & Politics
Politics
Oct. 23 2014 3:55 PM Panda Sluggers Democrats are in trouble. Time to bash China.
  Business
Business Insider
Oct. 23 2014 2:36 PM Take a Rare Peek Inside the Massive Data Centers That Power Google
  Life
Atlas Obscura
Oct. 23 2014 1:34 PM Leave Me Be Beneath a Tree: Trunyan Cemetery in Bali
  Double X
The XX Factor
Oct. 23 2014 11:33 AM Watch Little Princesses Curse for the Feminist Cause
  Slate Plus
Working
Oct. 23 2014 11:28 AM Slate’s Working Podcast: Episode 2 Transcript Read what David Plotz asked Dr. Meri Kolbrener about her workday.
  Arts
Brow Beat
Oct. 23 2014 4:03 PM You’re Doing It Wrong: Puttanesca Sauce
  Technology
Technology
Oct. 23 2014 11:45 AM The United States of Reddit  How social media is redrawing our borders. 
  Health & Science
Bad Astronomy
Oct. 23 2014 7:30 AM Our Solar System and Galaxy … Seen by an Astronaut
  Sports
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.