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Microsoft: My PC Crashed

That's because, as a hardware company, Microsoft has margins that will remain thin. Despite the company's best efforts, phone sales were still down, although since the merger with Nokia (NOK) is not yet complete, phone sales are not fully reflected in results. Microsoft has been selling the idea that all of a user's products work in the same way -- phone, tablet, PC and cloud -- and so one leg of that table needs to be propped up badly.

Worse, in smartphones, Microsoft is running third, behind both Apple (AAPL) and Google (GOOG). Google is selling unlocked Moto G phones for under $200 at its Google Play site (I recently got one), and so the margin pressure is certain to remain there.

But Microsoft is already sacrificing margin in devices in order to grow market share. Analysts love to say Apple margins are "hurting," but they're close to four times greater than Microsoft's. Devices are a winner-take-all market in terms of margin -- you either lead or you suffer. Except in gaming, where Microsoft and Sony (SNE) are crushing Nintendo (OTC:NTDOY) between them. Even so, Microsoft is suffering.

The barbell problem also reflects Microsoft's dilemma in choosing a successor to Ballmer, a decision that is as overdue as the choice of the Cleveland Browns' next coach. Among the leading candidates, Satya Nadella comes from the cloud side of the business, Nokia boss Stephen Elop from the device side, and there seems to be no candidate who knows both.

They may have offensive and defensive coordinators in place, but do they have a head coach with vision? Signs right now point to no.

At the time of publication the author owned shares in AAPL, SCHW and GOOG, but none of the other stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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