Microsoft's share price took a beating in the stock market this week ending 02/16 on CEO Ballmer's seemingly self-decapitating claim that the current consensus on expected Vista sales were "overestimated". Sales for the consumer-version of Vista OS and Office 07, released in January, have fallen "below estimates", though it is a typical trend for the sale of previous releases of MS OS to start slow and gradually pick up steam.
Their main revenue-driving product aside, CFO Liddell stated end of Jan that original sales estimates of the Xbox360 were too high, and has cut sales projections for FY'07 by 3m units to 12m. However, Xbox360's first-to-market strategy has seen them outsell Sony's PS3 and Nintendo's Wii and their pricing value is advantageous. Priced about $150-$300 lower than a PS3 and a wee bit higher than a Wii, but loaded with alot more features than the Wii, it is suitably placed to attract neutral gamers.
MS's market entering product into consumer electronics, Zune, despite a promising launch, has significantly lost ground on its sales target of 1 million sales by June 07. However, it may still meet the original market estimate of 500,000 units sold. Realistically, any predictions on MS's ability to chisel off Apple's market share of portable media players are premature as the ipod sold 250,000 units in its first year of launch. If MS is serious about the Zune, it will be as focused in design, feature and technology improvements as it was in launching the Xbox to compete with Sony's PS3, the gaming equivalent of the ipod.
Future Growth Analysis
Microsoft is a company in an experimental expansion phase. It is gambling future growth on a few business areas that already has incredibly strong majority players. In the next few years, and as soon as 3rd quarter of FY07, Microsoft plans to allocate more of its operating budget to R&D of the Zune family of products and to its lagging internet service and advertising business. Earnings growth in those 2 areas are not promising as iPod and Google have a commanding 75% and 42.3% market share respectively. MS is forecasting the Xbox business to start recording a profit by FY08 so that makes all their emerging products relatively poor indicators.
Technical Analysis
From the MACD chart (2nd graph), the blue line (darker line) shows how the MACD fell sharply during the late Jan-Feb period, possibly indicating overactive selling as a knee-jerk reaction of Vista's poor opening sales. At the same time, corresponding stochastic readings in the bottom chart shows strong indication that the new 2-month price lows being reached, may bottom out. This trend is corroborated by the narrowing of the divergence (black histogram) in the MACD but not the widening of the Bollinger bands (1st chart) where std dev size measures volatility. The smaller the divergence of the MACD the more stabilized the stock price is, which may indicate the stock bottoming out. However, with the actual stock price still reaching 2007 lows, entry positions into the stock should be held back to allow the downward trend to lose momentum.
The StocRockin' Point of all this?
My opinion is that MS stock will continue with its downtrend for just a little bit longer, until the consumer market buys into the Vista and Office 07, core products that can compensate for lack of growth in other MS business units.
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