TheStreet columnist Rocco Pendola continues to get slammed for offering his 10-year outlook yesterday on Microsoft (NASDAQ: $MSFT). You may not have liked Rocco’s straight-to-the-point delivery style, but was he completely off base?
I still recall the excitement and high-fives when Steve Ballmer announced he was stepping down as CEO. Immediately the stock shot up by as much as 10% on seven-times the volume.
Critics had finally gotten their wish. The Street never cared for Ballmer, and made no secret of it. Ballmer, in my opinion, was the biggest impediment to Microsoft’s growth. Microsoft’s board soon came to this conclusion.
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In fairness to Ballmer, he never received the credit he deserved for strategically positioning Microsoft in areas like enterprise software and services. As bad as things may have seemed at times, Microsoft’s “death” was always exaggerated.
Fairly or unfairly, what people will remember the most are Ballmer’s failures in the mobile realm, particularly against Apple (NASDAQ: $AAPL) and Google (NASDAQ: $GOOG). And that’s when they’re not bringing up the fact that Microsoft lost roughly half of its value on his watch.
None of this matters today. Ballmer’s legacy is already scripted and there won’t be any edits. But that doesn’t mean Microsoft will be in any better shape going forward. There are still deficits the company must overcome. Not to mention, considerable execution risk.
The Street should know by now that turnaround stories are hard. This is regardless of how much you want to love a company. New CEO Satya Nadella has said all of the right things. Nadella has also begun to reorganize the structure of his leadership, including creating room for Stephen Elop, the former boss of Nokia (NYSE: $NOK).
It is believed that Elop will assume the top position of Microsoft’s Devices and Studios segment. Given Elop’s experience with Nokia, this move makes sense. But Elop certainly wasn’t a pillar of success at Nokia. Now he’s coming on board to help close Microsoft $7.2 billion buyout of Nokia’s handset division – a deal he brokered for Nokia as CEO.
I hear analysts now saying that one of Elop’s main focus under Microsoft will be to “revive” the Surface tablet, though “revive” gives credit where it isn’t deserved. The Surface experiment has yet to achieve any meaningful level of success.
The device has made zero dents in Apple’s iPad armor. Nor has Surface sniffed the success of Amazon‘s (NASDAQ: $AMZN) Kindle. Using the word “revive” assumes it had accomplished a certain status. Let’s not kid ourselves.
I will credit the company’s board for finally realizing that if Microsoft was going to ever reemerge as a technology force, it was going to be without Ballmer. But I wouldn’t get too carried away here with the company’s new direction. It’s still unclear.
Granted it’s still early in the process. But there is more from Nadella that I need to hear before hopping back on the bandwagon. For instance, I have yet to learn what the company’s new growth initiatives are going to be.
Although products like Office, Windows and the Server business remain strong performers, I’m more interested to know how Nadella is going to attack new growth areas like the cloud. Amazon and Google have that market in a stranglehold. And with Apple gaining more traction in the enterprise, Microsoft need to quickly supplement what Office and Windows currently produce.
What’s more, there are key underutilized/poorly-marketed assets Nadella can actually revive. Skype is a prime example. As popular as Skype was when it was owned by eBay (NASDAQ: $EBAY), it has been a relative failure. Microsoft paid $8.5 billion for it.
Likewise, Microsoft’s management has done very little to capitalize on mobile messaging. With some vision and Skype was in the right hands, Skype could have been for Microsoft what WhatsApp just became for Facebook (NASDAQ: $FB).
Microsoft is not going to die tomorrow. That’s not what I’m saying. But Microsoft’s strengths are not where technology is heading. I need Nadella to convince me the company can pivot and adjust quickly. Until then, although there value to be had in this company, there isn’t enough growth potential to make me believe it can realize that value.