by Kris_Tuttle on January 6, 2010
Investors have clearly been voting with their feet when it comes to the battle for the Mobile Internet between Apple and Research in Motion (RIM). This comes at a time when it’s become crystal clear to all (including them) that Microsoft desperately needs a strong play in mobile but is too far behind to catch up without a major acquisition.
Put simply RIM is suffering from negative investor sentiment. Not only is it coming from Apple in the form of the iPhone but also in the shape of software and services under the Android umbrella from Google. Motorola appears more competitive thanks to Android. To add insult to injury people are starting to take Nokia more seriously in the space based on more claims by senior management about what’s coming in the future. (This from a company who for the first 16 months of board-level reporting had grouped “smart phones” into the “design and fashion” category instead of full-featured data!)
Based on Intrinsic Value (IV) RIM is the most undervalued company in the mobile space right now. And that’s factoring in all the present investor fears of slowing growth and lower margins for the next few years, almost dialing in a worst-case scenario. We admit that it doesn’t make RIM “cheap” as an acquisition but it does begin to make it look reasonable and potentially non-dilutive for Microsoft to consider.
The fact is Microsoft *NEEDS* more than just a strategy and technology, they need a footprint. The choices are few but Microsoft is large enough to buy any of them including Nokia. But Microsoft doesn’t need to be in the cell phone business the need to be in the mobile Internet space which is the world of the iPhone, Blackberry and Android class of device. Palm has some good technology but doesn’t come with a footprint, especially in the enterprise. Motorola has too much baggage in non-phone businesses and what they do have is now based on Android.
Boiling it down to price is the hard part. On current numbers RIM is trading at a bit over 1x 2015 revenues. But the market will look at current revenues and there will have to be an acquisition premium of at least 20%. That would translate into a P/S ratio of around 4x and result in some near-term punishment for MSFT stock and investors focus in on near term dilution.
Strategically however this would be a masterful stroke for Microsoft. Almost no matter what Windows 7 Mobile looks like it will appear too late in the game to gather any meaningful share and attention. Mobile is too important to settle for that as the best outcome.
Of course RIM doesn’t need Microsoft to make their business work or for the stock to reach our IV estimates. But there is no question that the company needs to continue to execute well. RIM has advantages in both the enterprise and the consumer space that can be used to fend off Apple and Google but they are going to need to protect and extend these in order to win.
In addition we’d expect other large firms like HP and IBM are now appreciating the almost overwhelming importance of mobile and both companies know RIM well and would be able to acquire the company fairly easily.
[Disclosure: The Research 2.0 model portfolio has positions RIMM, AAPL and MOT.]
by Dennis Byron on March 6, 2008
Pardon my French but de jure information technology standards such as the Open Document Format (ODF) suck and never achieve their intended goal. Especially when they are just the creation of one company using the standards movement, and complicit governments, to try to make up for total failure in the marketplace.
To the extent that Eurocrats want to waste their time on standards, so be it. Talk about activity having a negative effect on economic development (but does it matter since the EU will shrivel to nothing as an IT market shortly anyways?)
But Microsoft (MSFT) continues to waste shareholder value on standards too, trying to placate Brussels. It’s a bunch of European academics trying to dictate that the little thing that turns on the automatic windshield washer in your car always be on the left hand side of the steering column… from the same people who cannot agree on where the steering column should be in the cabin. Or what side of the road to drive on.
Please Microsoft, for the sake of your shareholders, let these hypocrites adopt Sun’s (JAVA) and IBM’s (IBM) “standard” Open Document Format. Tell the world that this is a company vs company thing that goes back to the dirty tricks played by them in Massachusetts four or five years ago. Then let the market decide the way it always does. What’s the current score? Something like 12:1 in downloads (measured in millions) with Office with OOXML leading Sun and others’ ODF.
– Dennis Byron
Tags: EU, open standards, ODF, OOXML, interoperability
by Dennis Byron on February 29, 2008
The year-end IDC Worldwide Quarterly Server Tracker factory revenue numbers were released February 27. From an operating system perspective, there’s really no new news in them (but see the press release or the relevant IDC report for vendor and other characteristics). But we mention them here for comparison with the quarter-by-quarter results we blogged on in November, September and May 2007.
For 2007 vs. 2006, the net-net is Microsoft (MSFT) Windows-based systems continued to gain share primarily at the expense of “Other” (primarily legacy mainframe-operating-system based). Unix/Linux-based server revenue was basically flat year over year with Linux open source systems continuing to displace UNIX systems as expected. Linux gained slightly more than a percent of share while UNIX lost just under a percent of share.
As we noted in November, it appears from eight quarters of IDC data that the Unix/Linux share of the market is stabilizing in the 40-45% range, although they hit 46% in quarter 4 2007 only. We will need to watch to see if this is an upward trend or a seasonal issue.
Although overall Windows-based server revenues are gaining at the expense of “Other,” such as IBM (IBM) mainframe operating softwre, the trends went the other way in quarter 4, so that is something else we will watch. I believe that blip was totally seasonal because end of calendar year buying is a 40-year pattern for legacy systems.
— Dennis Byron
Tags: Microsoft, open source, Windows, Linux, IBM
by Dennis Byron on February 21, 2008
As we’ve been noting since mid-2007, Microsoft (MSFT) is making every effort to put its anti-open-source baggage behind it. This is covered in detail in our annual Microsoft report released in December. On February 21, Microsoft announced sweeping open-source interoperability “principles” related to its volume software products (Windows Vista, the .NET Framework, Windows Server 2008, SQL Server 2008, Office 2007, Exchange Server 2007, and Office SharePoint Server 2007) that basically put its agreements with the European Union Competitive Commission, announced in October 2007, into Microspeak.
The announcement has three implications:
First, previous tactical opposition to open source software (OSS) has been a distraction to Microsoft’s “Software Plus Service” strategy, which hopefully will become more about providing IT and business services than mundame closed or open technology terms and conditions. This means “Software Plus Service” is misnamed (but don’t get hung up on words, as the U.S. presidential candidates are saying to each other). The Software Plus Service strategy has been a work in progress since Ray Ozzie joined Microsoft and dropping all the anti-OSS tactics makes that clearer to investors.
Second, although at the February 21 press conference Microsoft specifically said this announcement had nothing to do with the proposed Yahoo (YHOO) acquisition, that acquisition has everything to do with bringing Microsoft services to consumers just as most of the current available Microsoft “Live” services support enterprises. Microsoft is uniquely positioned to support both enterprises and consumers. More importantly, it can support each individual in his or her enterprise and consumer roles as those roles change during the day.
Third, the announcement covers all interfaces used by Microsoft itself in tying its volume products to “other Microsoft products.” That means it will be easier for open source software (OSS) providers to connect to the BizTalk integration engine (if that’s considered separate from Windows Server 2008), the Greats Plains heritage application software (even the smallest OSS ERP provider can write its version of SAP Duet), and more.
Apparently when it crossed all the t’s and dotted all of the i’s on the agreement Microsoft made with a free-software-oriented organization called the Protocol Information Freedom Foundation in December 2007, it decided to just open the kimono and eliminate the middle man.
Can you say this means Microsoft is now open source? No, and Microsoft took time in the press conference to spell out its intellectual property rights (licenses will be reasonably available but not freely available). But anyone who argues about the differences at length (and many long-time Microbashers will of course) is strictly splitting hairs.
– Dennis Byron
Tags: Microsoft, open source, EU, Windows, Protocol Information Freedom Foundation