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Goldman downgrades Microsoft, blames iPad

“We believe the intrinsic value of shares cannot be unlocked if the status quo remains, and we have increased caution near term on a more elongated PC refresh cycle, combined with the newer threat of notebook cannibalization from tablets, where Windows does not yet have a presence,” write Goldman Sachs analyst Sarah Friar and associates in the introduction to the report.

More advice about what to do about this in the linked article: Goldman downgrades Microsoft, makes case for major overhaul.

I’d skip over the recommendation to break up the company but the observation that Microsoft might face earnings threat from iPad is provocative. Usually it takes a few years for the incumbent to feel pain and react. The pain might be sooner than expected though the reaction might still take some time as the Windows Phone response to iPhone is taking its sweet time.

  • Vertti

    Then again. Last year they sold 80.9 million PC's during the Q3 (Apple's Q4). PC sales are up from the last year, but now Apple takes 10-13 million out of that (4 million Macs, 6-9 million iPads). Last year it sold 3.05 million Macs. That is massive jump upwards and it is almost all (60%<?) away from Microsoft. Then we have to calculate some effect for the iPhone + iPod Touch, because those are basically pocket computers. This is the first time when Microsoft starts to take serious/massive hits from Apple. So the MSFT downgrade is action to the right direction.

    • Vikram

      Exactly – I've never understood the idea that certain analysts are touting iPads or Tablets to be an "additive" device.

      They aren't.

      People only have limited budgets. Instead of upgrading their laptop or desktop, if they buy an iPad then they will defer or not purchase a new one or buy a lower cost PC-type device and for lower cost devices MSFT has to give a pricing break (like with Netbooks to get rid of Linux)

      Also iPads are starting to get into the enterprise. A iPad with a bluetooth keyboard and iWork for $30 has a TCO less than that of laptops needing hundreds of dollars in Anti-virus software, IT support and $200 Office licenses. Basically you get 90% of the functionality and 50% of TCO over a couple years. Enterprises will figure that out…

      …and the next generations of iPads will become more powerful and I don't doubt that they will soon run desktop class software with mice (if needed) and you have an all-purpose computer.

      I predict that Apple will sell 40M+ iPads in 2011 (not a bold prediction considering the 2010 4rth quarter is 3M a month)

      If you have 350M PC's or so sold in 2011 – close to 50M will be Apple Macs and iPads. That's nearly 15% of the worldwide market from 5% in 2009.

      Amazing…a lot of people haven't figured out that an iPad is a PC. They will pretty soon when iPad2 comes out.

      • Vikram

        …and of course add several million Android and RIM tablets…

        …MSFT can't charge big OS and Office fees like they have if they come out with a Tablet device that is priced competitively which also puts revenue ASP pressure.

        Tablets are the PC of the future…and the future is now.

      • Shaun

        Of course the iOS devices are additive. You can't do anything with them without iTunes on a Mac or PC. They're about the MOST additive devices in the mobile space currently. You HAVE to have a connected Mac or PC to update the devices for one – no over-the-air updates or Bluetooth data transfer. Getting data in and out of an iDevice is an exercise in frustration unless you submit to Apple's iTunes does everything rule. They're about the only devices that still need USB cables to do any data transfer.

        Apple unfortunately will not cut that umbilical cord as it would affect the need for Macs just as it would affect the need for PCs. They aren't going to do that unless they're ready to further make the Mac a niche for "power users", which may indeed be coming as they continue on they're quest for creating devices for dumb users.

        At the moment though, with Mac sales climbing, that umbilical cord is safe.

      • http://twitter.com/ThembeK @ThembeK

        I gave you tumbs down, not because I disagree (I do) with you but because you are calling people you do not understand/know dumb for no good reason.

      • Vikram

        This will change pretty quickly…you think that Apple is standing still in terms of what iPads will do? They will allow complete OTA updating.

        And as of now, I would say that iPad 1 is only incrementally additive in that many families will have several computers between them and you only need 1 computer to run iTunes off of if that's what you want to do…

        …and they are not additive in the enterprise. Many companies are starting to buy iPads for their mobile sales and workforce and they won't buy them an iPad and a PC .

      • http://twitter.com/aegisdesign @aegisdesign

        How long has the iPhone been out? 3 years+

        No sign of OTA updates. iTunes gets more bloated. iSync still not had an update in years. It's pretty clear they aren't doing OTA.

      • kevin

        @Shaun: The iPad is additive to the first PC. A 2nd PC is now history, and upgrades to the first PC is deferred.

        Most people in the US (and even Western Europe) already own a PC (laptop or desktop). The iPad is replacing the need to upgrade that PC, or buy a second PC.

      • http://twitter.com/aegisdesign @aegisdesign

        Totally agree. It's a second PC replacement. That's where I'd use one…. if it did what I wanted. We'll see when iPad v2 'The Less Dumb One' arrives.

      • RattyUK

        @shaun
        Once again you illustrate your complete lack of knowledge about the platform and are just attempting to score points.

        "Of course the iOS devices are additive. You can’t do anything with them without iTunes on a Mac or PC." Well once it has been activated, which can be done in store, and if you don't want to do any back ups then it works pretty fine as a standalone device.

        "They’re about the MOST additive devices in the mobile space currently. You HAVE to have a connected Mac or PC to update the devices for one – no over-the-air updates or Bluetooth data transfer."
        So you would like a 400 meg update over 3g? Yes, incoming argument of course will be that Apple should be able to do incremental upgrades rather then replace the OS in one sitting. But hey, don't let that spoil a good rant.

        "Getting data in and out of an iDevice is an exercise in frustration unless you submit to Apple’s iTunes does everything rule. They’re about the only devices that still need USB cables to do any data transfer."
        This is where you fall flat on your face though. There are plenty of Apps that allow over the air transfer of files. Dropbox, most of the reader software, can all do it via wi-fi, AirTunes gets around it by streaming, but that works too.

        "At the moment though, with Mac sales climbing, that umbilical cord is safe."
        The vast majority of iPad users are PC users for the moment just as it is in the real world.

        I don't really get where you are going with this diatribe though. As mentioned elsewhere the iPad is a subset of computing that does what most people were buying a PC for. For some reason you don't seem to understand that not everyone requires Photoshop or Logic or whatever to get on with their lives. Most people just want facebook access.

        The only point you may have is that this is just a dumbing down of computing and in the coming years it will start to get expensive it you want to create content with a computer…

      • http://twitter.com/aegisdesign @aegisdesign

        Once again RattyUK, you're assuming too much and just insulting people with a different opinion to yours.

        I'm aware that once activated you don't have to connect them to a PC/Mac again though isn't that missing the point if you never want to stick content on your iPad from elsewhere – eg. Music or Video.

        400Mb over 3? Why? Use Wifi – oh, you can't do that either. Dig out the USB cable.

        I used to use DropBox regularly before switching to SugarSync as it supports more device platforms. DropBox is ok but it's a 3rd party bandaid to get past Apple's ridiculous sandboxing of apps and not all apps support it. It's pretty stupid that you have to code your app to support DropBox instead of just letting apps access storage on the device. For a platform that allegedly is all about ease-of-use, they seem to make it really difficult to just transfer files to the device.

        I don't really get where you are going with your defence though. As mentioned elsewhere the iPad is a subset of computing that does only what Apple want you to do. For some reason you don't seem to understand that not everyone requires hand holding or whatever to get on with their lives. Most people just want apple to get out of our way and let us do what we want with the device we've paid for.

      • Vertti

        Let's make a bet..
        Who comes closest before18th with revenue and profit + iPad extra ;)
        The best one can afford to buy everyone a drink ;P

        Champagne for everyone!

  • Chris Harris

    What is interesting is that Apple's Mac OS X is able to be ported to different chip architectures. With the new generational leaps that are about to happen for the ARM chip line (2Ghz). Apple will be able to create new super low power laptops that last a full day on a charge and are thinner and lighter with much lower heat emissions. Just take a look at the old Apple TV (Intel) and the new one (ARM) to see the difference in profile, power and heat.

    Those sort of innovations could cause a mass exodus from Wintel machines in the medium to long term.

    • Vertti

      You should check WWDC keynote 2005 ASAP.
      Everybody knows this.. UNIX Mac OS X is totally portable to any given processor and there is a twist…

      ARM.. History…

      The Company was founded in November 1990 as Advanced RISC Machines Ltd and structured as a joint venture between Acorn Computers, Apple Computer (now Apple Inc.) and VLSI Technology. Its first profitable year was 1993…

      • Vertti

        MEA CULPA!

        Wrong reply chain!!
        Chris Harris! You said xactly what I tried to say!

        MEA CULPA!

  • David Chu

    Any company that didn't see revenue growth from last year (the height of the economic crisis) probably should close their doors already.

    For everyone who thinks that you can market your way to success should take a look at Microsoft. They spend more than Google and Apple on a percentage of revenue and yet they keep losing marketshare.

  • David Chu

    Ughh… I hate how analysts always suggest increasing dividends. Microsoft's problem isn't their share price, it's that they have been slow to respond to a changing tech landscape. Fix that and your share price will fix itself.

    • Vikram

      So true…this betrays the short sighted thinking of analysts. They should focus on criticizing MSFT to increase value in the intrinsic enterprise…instead they focus on short term share price.

  • MattF

    Also, the suggestion that MS should spin off its game business must sting. Finally succeeding after years of effort and immense expense, now told to sell it off. There's yet another edifying comparison with Apple here– look at the way the iOS gaming ecosystem has grown up and flourished– to become a major attraction of a family of devices without any subsidy from Apple.

    • famousringo

      The key difference is that Apple brought new values to gaming: A novel and compelling interface, and a distribution system that makes the game market cheaper and more accessible to both producers and consumers. Publishers and consumers were so enthusiastic that while most game platforms have to dangle incentives to attract developer and consumer interest, Apple has been scrambling to try to catch up with the tools to satisfy developers and customers that are already on-board.

      With the Xbox, Microsoft simply tried to take the values of one existing game platform (the PC) and cram them into another existing game platform (the home console). The result has been a slow and expensive mess, as customers who want PC values stick with their PC, and customers who want home console values buy other consoles (first the Playstation 2, now the Wii). There's even some evidence that whatever success the Xbox platform has earned may have come at the expense of Windows.

      Some say that the main goal of Xbox was to keep Sony away from PCs. If that's true, then it has at least been successful in that measure. Sony has been duped into making every mistake Microsoft has, and then some.

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  • John

    You have to be careful about picking on the iPad for what it can't do today. This is version 1.0 we're talking about. If Apple thought that something like over-the-air syncing was really important it would be released in a week or two.

    I believe that for the enterprise it is possible to update apps over-the-air without iTunes.

    • http://twitter.com/aegisdesign @aegisdesign

      I don't think it's unfair at all to pick holes in a v1.0 product. If it's got holes in it and it's not for you, then that's fair enough. Pass comment. Sit it out. Wait for a fix or buy a competitors product. It'd be great to see those holes fixed in a v2.0 product though.

      However, we're at v4.0 on the iPhone and it still has many holes including no OTA and a crappy Bluetooth stack (amongst many issues). Either Apple doesn't think they're important holes or they don't want to add them for other reasons. Sometimes with Apple they take forever to get a feature right before release eg. Copy and Paste. Sometimes I just get the feeling they think it's an awful feature in the competition's products and it'd make their product suck just as much no matter how they added it. Sometimes they've designed something really simple and adding a complex feature would destroy their simple interface – see SIP support for example.