Breakout

High Hopes for Windows 8? Nope, Microsoft Is About to Bomb! Says Jackson

Breakout

Microsoft (MSFT) officially launched its Windows 8 operating system and Surface tablet computer today worldwide. The new operating system is seeking to do what Apple (AAPL) still hasn't, use one OS to bridge the gap between PCs and mobile tablets. So far, anticipation of the massive rollout has done little to spur investor sentiment.

"I think they're in trouble, I think there's a bomb about to go off at Microsoft with this stock," says Eric Jackson, founder of IronFire Capital. He believes investors have been distracted by larger problems at struggling tech behemoths like H-P (HPQ) and Dell (DELL), which are overshadowing reasons to be skeptical about the long-stagnant Microsoft share price.

No matter how flashy, adaptable, and consumer friendly Windows 8 may be, weakness in the PC market tops Jackson's list of concerns. IHS ISuppli predicts the PC market will contract by 1.2% this year —the first annual decline since 2001.

"We're on the cusp of a potentially big shift here for Microsoft with this contraction that we're seeing in the PC market," Jackson says. "Obviously they've got a diversified portfolio of products, but if PCs really start to fall off that's really the lynchpin for Microsoft."

Breakout co-host Jeff Macke and Eric Jackson walk through the new stable of Microsoft products.

Xbox Music

Xbox Music, a digital jukebox service integrated into Windows 8, is Microsoft's answer to iTunes, Spotify, and Pandora (P).

"It makes sense perfectly from a strategic perspective," says Jackson. "And yet, when it comes to execution they have been tone deaf when it comes to consumer taste and really getting a product out there that people love."

Jackson doesn't see any reason why Microsoft's latest jump into digital music will be any different from the defunct Zune.

Surface Tablet

From apps, to pricing to general experience, there's a long list of concerns about Microsoft competing in the tablet space. "I think they made it dead on arrival when they priced it the way they did," Jackson states. "They basically said it's worth as much as an iPad. I don't know why they did that."

Microsoft is charging $499 for the base model 32GB Surface tablet. Add on the black Touch Cover and it's $599. Make it a different color for $629. Up the device to 64GB with a black Touch Cover and you're paying $699. Jackson isn't the only one concerned about the price model. Here's a quip from a Redmond Channel Partner review:

How those prices compare to the dominant tablet on the market is...poorly. The current Apple iPad, the device Microsoft seeks to unseat, starts at a base price of $499. In other words, the device with all the mindshare and a massive ecosystem of working and popular apps is the same price. Worse still, Apple's highly capable older model, the iPad 2, can be had for $399. —Scott Bekker, RCPMag.com

Next, Jackson is skeptical about the overall user experience, calling Apple's iPad flawless in comparison to every other tablet.

"Is it that far of a stretch to think that Microsoft is going to come out with a clunky tablet to begin with?" he asks. "I just have a hard time seeing how people are gonna love it."

Windows 8

Last, and most important, the Surface and new PCs will run on Windows 8 — the biggest overhaul within Microsoft in two decades. The new operating system is a major change in aesthetics and usability, or what Macke calls "a bet the farm move." The OS has touch-screen capabilities and promises to be compatible with popular apps. (See Related: Can Windows 8 Save Microsoft?)

"There are a lot of question marks hanging over this thing [Windows 8]," says Jackson. "It is really comes down to 'are the enterprises going to upgrade?'"

Which brings us back to the core business. If enterprise doesn't back Windows 8 and PC sales contract, it hits at the heart of Microsoft, and will make a $30 a share difficult to hang on to.

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