Why Microsoft May Finally Be Set to Turn Its Fortune Around

By Wednesday, August 28, 2013

technical analysisSteve Ballmer’s run as the head of Microsoft Corporation (NASDAQ/MSFT) is winding down after his somewhat surprising decision to exit the company within a year.

Yet the move may make the difference between Microsoft being a mediocre technology company or a technology company blazing ahead of its competitors, right at the forefront of technological advances.

My opinion on Ballmer is mixed, as I feel like he focused way too much on developing the next-generation “Windows” operating system instead of recognizing new market trends.

Under Ballmer, the company failed to really gain much altitude and has been a dead stock for over a decade, as reflected by the sideways channel from 2001, based on my technical analysis of the stock chart below.

Microsoft Corp Chart

Chart courtesy of www.StockCharts.com

Microsoft failed to recognize the growing importance of the mobile advance even when smartphones started to become hugely popular, even after the emergence of Apple Inc. (NASDAQ/AAPL) and its “iPhone” in 2007. Microsoft also failed to focus its energies on the tablet market, while Apple introduced its “iPad” in 2010. Years passed with Apple becoming more and more valuable than Microsoft before Ballmer decided to make a push into the high-growth mobile market. And this is what has hurt shareholders.

The one thing that Ballmer has done well has been moving the company into the gaming and entertainment console market with its “Xbox” platform and rapidly growing market share. Kudos to Ballmer for ensuring the company’s rapidly growing market share in this sector, but his shortfall on the shift from rigid platforms to mobility will haunt him.

What’s important is that Microsoft should be looking to add a new leader who has technological savvy and vision, a leader who could take the company to the next level and demand valuation premiums worthy of a growth stock. The company must continue to focus more on its small mobility unit. (Read “Has Microsoft Finally Become Relevant in the Mobile Market?”)

With net cash of about $60.0 billion, Microsoft’s new CEO will have sufficient resources to build up the company’s mobile unit, along with other emerging technology areas that show great promise.

An idea to unlock the value of its gaming business may be to break the company into pieces to create spin-offs. If the mobile business picks up, Microsoft may also be looking to separate this section of its business or combine it with the gaming business, as the new platform will have a strong wireless element.

So as we wait for the new CEO, I hope he or she will have the vision and aggression to once again make Microsoft an interesting stock, something akin to what Yahoo! Inc. (NASDSAQ/YHOO) CEO Marissa Mayer has been doing. Kind of makes me wish she was around for Microsoft.

About the Author, Browse George Leong's Articles

George Leong is a senior editor at Lombardi Financial. He has been involved in analyzing the stock markets for two decades, employing both fundamental and technical analysis. His overall market timing and trading knowledge are extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi Financial’s popular financial newsletters, including Red-Hot Small-Caps, Lombardi’s Special Situations, Judgment Day Profit Letter, Pennies to Millions, and 100% Letter. He is also the editor-in-chief of a... Read Full Bio »