Will Fibonacci Save Microsoft?
Ramesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Microsoft Corporation (NASDAQ: MSFT) just released Windows 8, on October 26, sporting an entirely new Interface that encompasses both touch screen and traditional windows capabilities. Windows 8 is Microsoft’s newest operating system and almost $2 billion was poured into its marketing according to Forbes magazine. This makes one wonder if that kind of marketing heft took the much vaunted Fibonacci numbers into account. Especially, the number "8" and the impact that it might bring to bear on Microsoft's stock!
What exactly is a Fibonacci number? In essence, it is a mathematical sequence consisting of numbers that are the sum of the preceding two numbers. For example, 0, 1, 1, 2, 3, 5, 8, 13 etc. are all numbers in the Fibonacci sequence. Many traders on Wall Street love the Fibonacci number to help make price movement predictions and then trade stocks based on those predictions. They call themselves “Fibonacci Traders,” and claim to divine market movements with such accuracy that their frenzied chatter is bound to send the average Investor into a tizzy. For us Foolish Investors, suffice it to watch the fun from the sidelines, but nevertheless we should understand that Fibonacci has an influence on Wall Street. Is the choice of the moniker – Windows 8 perhaps based on a prophesy that the number 8 could somehow revitalize and rejuvenate Microsoft's stock? Will this new operating systems release somehow make a difference to a mature company’s prospects? Let us look at it from a Foolish perspective, shall we?
No Sense of Urgency
First, you need to know that I practically grew up with Microsoft DOS (aka MSDOS), Windows 3.1 and the various flavors on both the consumer side and the server (IT department) side since 1990. I was certified on several Microsoft products and my livelihood as a database technology consultant means that I still actively use the products made by Microsoft on a daily basis. I had the ability to preview Windows 8 for over a year and had access to the full blown retail product that was released on October 26 long before the release date. Yet, at the time of this writing I have still not installed, tested or evaluated Windows 8. Not because I did not have the time and certainly not because I was lazy. The fact of the matter is, I never felt the need because I was perfectly happy with Windows 7 which currently powers my laptops and desktop computers around my work and my home. Windows 7 by the way was released in 2009, but it reached widespread installation and use late into 2010 and early 2011. In fact, many corporate IT departments around the world are still rolling out Windows 7! The previous version, Windows Vista was in most respects an unmitigated disaster and companies and individuals held off upgrading until Windows 7 came along. Now, Microsoft is asking all these people to upgrade to Windows 8 again, so soon? Therein lies the problem. Where is the urgency? Gartner Inc. (NYSE: IT), the IT research and advisory company, cautions that Windows 8 adoption is likely to be slow and a “big gamble.”
Microsoft is banking on the fact that the touchscreen revolution that earned Apple (NASDAQ: AAPL), millions of new fans around the world will quickly embrace Windows 8 as well now that the Windows world is touch enabled! There is a paradigm shift with this new way of navigating the Windows environment and for those who don’t care for the touch screen environment (including your’s truly), this is a problem. Apple products have their space and their place in the minds of consumers, but many of these same consumers appreciate the Windows environment in a different context and seldom do these two worlds intertwine. Unless one is an Apple fanatic, most people I know use a Windows computer to do productive work (that includes typing) and use touch screen devices such as Apple’s iPad and iPhone’s and Motorola Mobility’s Android driven phones to do lighter tasks. Motorola Mobility has now been acquired by Google (NASDAQ: GOOG). Google owns the Android software that it gives away to everyone including companies such as Samsung Electronics for free to power their touch screen smart phones and devices.
Wowing the World & Wall Street
Microsoft is banking on the Windows 8 operating system to enable it to develop a commanding presence in the tablet and smart phone markets as well as cementing its role as the dominant, de facto corporate standard. The last time it went all out to wow the world was with the launch of Windows 95 in 1995. If you take the “9” out, “5” is a Fibonacci number and if there was any prediction out there that Microsoft would do well with Windows 95, then that prediction came true! However, Fibonacci number or not, “8” is not likely to bring much muster to Microsoft’s “gamble.” Well, at least not in the near horizon. Gartner expects widespread adoption by corporate IT departments no earlier than 2015! That is a long wait for Investors in Microsoft stock. Mind you, this is not a stock with a likely growth trajectory like Apple. Microsoft is a mature yet stable company with an enormous user base across the corporate and social spectrum throughout the world. That base is unlikely to abandon ship anytime soon. The company might want to grow and expand this base, but unless another billion users around the world join the billion Windows users that exist already, expect to sit on a relatively mature and mostly stable stock. Microsoft also pays a decent dividend which for the past four quarters was $0.20 cents per share. Just don’t expect to double your money!
So, what should you do if you want to invest in the stock as a new Investor? If you want to buy, do so for the fundamental reasons, not because you expect something spectacular to happen in the next few months or even years. As always, I recommend that any buying decision should involve small lot purchases over time. That way, one always gets to take advantage of dollar cost averaging. If you are already an owner of Microsoft stock, then hold it. Lack of fast adoption of Windows 8 is unlikely to massively tank the stock because despite the media hype, market expectations are not that great anyways.
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