This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Scratch the Surface: Microsoft Should Exit Hardware

NEW YORK ( TheStreet) -- A couple of weeks ago, I asked, "Where's Microsoft Going?"

It was a rhetorical question, one that I've been pondering for quite some time. Although I've always liked this company and have come to its defense on more than one occasion, I don't believe that management has taken the sort of risks necessary to grow Microsoft (MSFT - Get Report) beyond its core businesses.

Though Microsoft has struggled to compete with Apple (AAPL) and Google (GOOG) as the importance of mobile devices grows, the bull case for Microsoft has always been the company's strong cash flow, which has been spurred by its Windows and Office franchises.

But given the dire state of the PC industry, which has been in perpetual decline, Microsoft now appears to be constantly "in transition." This now seems to be the popular excuse for the company's weak recent results, including its recent miss in its GAAP gross margin, which declined by five points in the fourth quarter.

Missed estimates is one thing, but I can't overstate enough the magnitude of this new reality. Nor can I ignore the company's slashing of prices of its failed Surface tablets in hopes of increasing higher adoption. Unfortunately, the strategy, which has come at the expense of better margins, is not working. And now Microsoft is running out of options.

Let's recall, it's been only a couple of weeks since the company announced that the price of its Surface RT tablet, which has been a failure by many standards, was going to be trimmed 30% from a price of $499 to $349. Raise your hand if you didn't see that coming. How Microsoft felt that it could go toe-to-toe with Apple by putting Surface at a price point where the iPad is dominating, is still a mystery to me.

Although Surface has decent features and a real nice ad campaign, retailers were struggling to sell the product. Looking to incentivize shoppers, Microsoft then responded by offering a free keyboard cover. But that didn't work either. So you didn't need a crystal ball to see that last month's price cut was the logical next step.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
MSFT $43.28 0.00%
AAPL $129.36 0.00%
FB $79.60 0.00%
GOOG $573.64 0.00%
TSLA $199.56 0.00%

Markets

DOW 18,203.37 -85.26 -0.47%
S&P 500 2,107.78 -9.61 -0.45%
NASDAQ 4,979.9010 -28.1950 -0.56%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs