Is Microsoft (NYSE: MSFT) too big to succeed? Goldman Sachs (NYSE: GS) may think so. Recently, Sarah Friar, a prominent researcher at Goldman, published a lengthy piece detailing the woes of Microsoft, and ultimately suggested that a drastic move is in order.
The evidence is rather clear – Microsoft’s share prices have stagnated, and continuing the status quo will do nothing to change that. While competitors like Apple continue to pioneer into new fields and products, Microsoft has largely stagnated since their last major innovation entering the gaming market. Providing further fuel to the fire is the fact that this year, while the S&P 500 and Nasdaq are in the black, Microsoft’s shares are down 20%. As consumers are more openly embracing competitors Linux and Apple’s OS, the near monopoly dominance in the operating system market is eroding. Similarly, the X-Box gaming system faces stiff competition with Nintendo’s Wii and Sony’s Playstation. Trying to do so much may have spread the firm’s resources too thin.
Friar commented within the report, “A break-up of the consumer businesses could potentially unlock hidden value, or more discipline on cost could turn the businesses into contributors to profitability and shareholder value. For example, the Xbox products could be an appealing stand-alone entity, given the historical success of the Xbox and the products’ brand strength, and the business could show unlocked value with forced cost discipline compared to as a piece of Microsoft.”
With all of this in hand, Friar downgraded the stock, and took it off of Goldman’s Buy List where it had been for the last two years. Shareholders will likely take notice – although Bill Gates may have become a media darling with his philanthropic ways, the challenges for Steve Ballmer are loud and clear. A tech firm is only as good as it’s next big product. Besides an obvious next step of a new update to the Windows Operating System, there is nothing ground shaking on the horizon for the firm.
