Why Microsoft Does Not Have To Be Apple

Richard is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

It’s starting to look more and more like Microsoft’s (NASDAQ: MSFT) desire to reinvent itself is not going as well as the company had planned. Aside from the fact that there's a gross dislike for the company’s management by Wall Street analysts, there's also been very little buzz surrounding the release of Microsoft’s Surface tablet and Windows 8. While that may not bode well for the stock now, growth potential still exists. But will investors be patient enough to realize that value?

Just Be the Best Microsoft It can Be

Microsoft often gets punished because it is not Apple (NASDAQ: AAPL). Fairly or unfairly, that is how the company is being judged. But in trying to be what the street wants it to be, it seems the company has begun to take its eye off what it is truly good at. For example, in Microsoft's most recent earnings results, the company reported net income of $4.47 billion, or $0.53 per share on revenues of $16.01 billion.

On a relative basis, this performance would otherwise be outstanding. But the company missed on both its top and bottom line estimates. In the process, Microsoft ended its streak of revenue growth, which spanned four quarters. However, the real glaring story was that both revenue and EPS dropped 8% and 22% respectively.

What this means is that in the midst of the company trying to live up to expectations, or wanting to be Apple, Microsoft has begun to lose its enterprise dominance. Worse yet, this report inspired little confidence that the company can get out of its own way – particularly after having reported its first ever loss ($5.11 billion) in its prior quarter. In other words, Microsoft had a lot to prove, but the company clearly got started on the wrong foot.

Where Is the Company Heading Next?

This is the question that investors want to know. But it is not one that can easily be answered. During the conference call, Steve Ballmer, the company’s CEO said this:

The launch of Windows eight is the beginning of a new era at Microsoft. Investments we've made over a number of years are now coming together to create a future of exceptional devices and services, with tremendous opportunity for our customers, developers, and partners.

That all sounds great – except Wall Street is not buying it. And as evident by Surface's disappointing sales figures released from Black Friday, consumers aren’t buying it either. The good news is that this was expected - at least it should have been. Instead of trying to create Apple-like buzz, Microsoft investors should realize what the company is. It is a mature operation where its largest customers are often too slow to adapt. But that's not neccesarily a bad thing. It's always been this way.

For instance Windows XP is arguably Microsoft’s most successful operating system. Many large enterprises are still using it today – except it’s over 12 years old. So the idea that Windows 8 was going to immediately propel Microsoft to new heights was completely misguided. What’s more, it seems a bit foolish for anyone to suggest that the company’s future would hinge on a single operating system.

The company is sitting on $66 billion in cash and is still dominant with MS Office. Likewise, Microsoft is in the midst of fully transitioning into its Azure cloud platform to compete more effectively with the likes of Google (NASDAQ: GOOG) This is in reponse to Google's recent rise with Google Apps, which have stolen share from MS Office. 

What's more, Azure is designed to be open and flexible while enabling users to build, deploy and manage applications across global networks. Microsoft is hoping that this new platform can put a meaningful dent into the SaaS (software as a service) market lead that Saleforce.com (NYSE: CRM) and Oracle (NYSE: ORCL) currently enjoy.

Bottom Line

Clearly, there are plenty of growth opportunities for Microsoft and the company does not have to focus on beating Apple for them to materialize. In that regard, it is still too early to say that Windows 8 won’t live up to its billing. On the other hand, I just don’t think that it is a “make or break” the company type of situation. Microsoft just needs to be the best Microsoft it can be.

In the meantime, it is going to require more patience for investors to realize its value. Nonetheless, from a purely risk/reward ratio, there are very few stocks that present such margin of safety and pay a good dividend. I would be a buyer at current levels as there is an opportunity for the stock to jump back up to the low $30s as soon as the “January effect” hits. 

rsaintvilus is long AAPL and has no positions in the orther stocks mentioned above. The Motley Fool owns shares of Apple, Salesforce.com, Google, Microsoft, and Oracle. Motley Fool newsletter services recommend Apple, Salesforce.com, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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