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Microsoft's billions count for little in post-PC world

india Updated: Oct 29, 2010 14:05 IST

Microsoft reported record first-quarter sales on Thursday of more than $16 billion and notched up a not-too-shabby $5.4 billion in net profit.

Not bad for a company that has been widely written off as a creaking dinosaur, destined to go the way of T-Rex in the face of competition from Google, Apple, Facebook and other companies that we probably haven't even heard of yet.

It's not just the tech contrarians who have been ganging up on the great software giant from the north. CNN ran a big story this week with the headline "Microsoft is a dying consumer brand" at a time when no less than five leading financial analysts all downgraded the company's stock.

If that weren't indictment enough, the nail in the coffin was hammered by Ray Ozzie, the company's outgoing software guru.

He's one of the most renowned visionaries in the technology world, a man who laid the foundation of modern business software by inventing Lotus Notes in the 1990s. His fear is that Microsoft will go the way of Lotus Notes and become just another niche player, as it clings to the legacy products that are the foundation of its fortune, rather than the springboard for its future.

Ozzie wrote a 3,000-word memo to his Microsoft colleagues, in which he urged them to look beyond the era of the PC to a multi-device future where software and services reside in the cloud, instantaneously accessible, presciently powerful, awesomely intelligent and blissfully free of such dated 20th century artifacts as PC desktops, CD-installed programmes, files and folders.

But as the noted tech commentator Robert X. Cringely noted, this stuff isn't exactly new and Ozzie's observations smacked more of hindsight than prophecy.

"That post-PC era isn't coming. It's already here," Cringely noted. "You can date its arrival to January 9, 2007 - the day Steve Jobs unveiled the iPhone. Everything follows from that."

Microsoft was too busy gorging on the monopolistic profits of cash cows such as Windows and Microsoft Office to acknowledge the significance of the mobile revolution and the Google insurrection, which now look like making its entire business model largely obsolete.

David Hilal, an analyst at FBR Capital, spoke for many of his colleagues in the investment community when he downgraded the company over concerns about slowing PC-growth, and Microsoft's poor position in the fast-growing areas of computing - tablets and smartphones.

Even before the downgrades, Microsoft's stock had been flat to down for the last 10 years, and the continued strong performance of legacy businesses such as Office and Windows will not be enough to change that.

Microsoft does have a few tricks up its sleeve. Its Xbox Kinect, which hits markets next month could become the game console to beat with its game-changing technology that tracks players' movements and translates them to the screen. Windows 7 has also been praised as a potentially worthy rival to Google's Android and Apple's iPhone, though many feel it will be too little too late.

It doesn't matter what happens with Microsoft's core business, says Business Insider's Jay Yarrow. "It has grown a number of businesses over the last 10 years and investors could care less."

Financial analyst Sasa Zorovic put it another way. "We were expecting great earnings, great cash flow - and the stock not to go anywhere," Zorovic told Investors.com.

"From the investor standpoint, the company is facing death by a thousand cuts, not one or two blows. The sceptics' argument is you get great revenue, earnings and cash flow, but then PCs go away. And the tablets and smart phones win and cloud computing wins, and Microsoft just isn't there."