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Microsoft Is Still Finding It Difficult To Catch Up To Apple

This article is more than 10 years old.

Prolific empires simply do not last. If you want confirmation, you can either research history books or you can walk down Wall Street. What you might find are the remains of some of the most prominent companies that our country has ever known.

These names have either fallen off the radar dramatically such as Eastman Kodak or they have become mere shells of what they once were such as Blockbuster, Sears and Sony. Software giant Microsoft is trying to avoid making both lists. And investors are hoping that the recent steps taken by the company will restore its once dominant brand and help it compete more effectively with the likes of Apple, Google and Amazon.

Pressured To Succeed or Forced Into Failure

At this point restoring the empire should be far from the discussio. Microsoft only wants to be relevant again. From that standpoint, the company has not made any promises and is being very careful not to set the bar too high. So far the results have not been too favorable. Any advancements made by Research in Motion and the release of its BB10 operating system will only increase the pressure on Microsoft to execute, but this could be both good and bad.

The bad: Microsoft grossly mismanaged the Windows Vista launch as it rushed to get the product out in response to enterprise pressures. The good: Pressure from Nintendo's Wii also forced Microsoft to produce Kinect for the Xbox, which has been a huge success. So it’s hard to say which Microsoft will surface.

Speaking of Surface, the company’s tablet seems to be performing below expectations. According to data released from Black Friday, which chronicled foot traffic at stores of both Apple and Microsoft, it was discovered that 11 iPads were being purchased every hour. By contrast, not one Surface tablet was sold during the time that the analyst from Piper Jaffray was at the store, this according to Fortune.

Although it is still early, chances are not good the Surface will be able to make a meaningful dent in Apple’s iPad dominance. What’s more, Microsoft's recent string of mishaps (like a 33% year-over-year drop in Windows revenue last quarter) has caused Wall Street to become less forgiving of management. Surface's best chance of picking up customers is among enterprises, as it is better able than the iPad of making use of MS Office. Microsoft needs to hope that IT buyers appreciate this capability and adopt Surface as a suitable replacement for their legacy laptops.

Microsoft shares remain significantly undervalued at $27. There is very limited downside potential, particularly when considering Microsoft’s strong fundamental position, which includes $66 billion in cash. But to bet on Microsoft now you're really betting on management figuring out how to reverse the recent decline in margins and revenue.

I never expected Windows 8 or Surface to be the death-knell of Apple and Google, but I didn’t expect that they would be laughed at either.

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