On Oct. 26, the day after Microsoft's MSFT big event announcing Windows 8, I was on Yahoo! Finance's Breakout show talking about why I believed the company was in a very precarious spot. Back then, I said that I thought Microsoft was a short around $30 and could fall as low as $22 within a year.
At the time, the stock was trading around $28. A few days later, it quickly rallied to above $30 on the hopes of a good launch.
Microsoft is making a huge bet on a Windows 8 upgrade cycle. It has spent upwards of $3 billion to market the new operating system to date. The new operating system constitutes the underpinnings of its desktop-based OS and suite of software services, as well as the company's burgeoning mobile-phone OS.
But I still stand by my forecast of a big drop in Microsoft stock, and we're seeing the shares slump back from their recent jump above the $30 high. The stock was recently down in the low $28 area.
Microsoft said it sold 4 million copies of Windows 8 in the product's first three days on the market. Apple AAPL similarly sold 3 million copies of its OS X Mountain Lion OS in four days, as investor M.G. Siegler and economist Jon Gruber have pointed out. Apple also sold 3 million iPads and iPad Minis in its first weekend of sales. So that company seems to be generating a similar level of interest for its new software and products as Microsoft is for this OS.
But recall that, at the moment, Microsoft has an installed base of about 1.25 billion Windows personal computers worldwide.
Some other interesting data points, courtesy of Business Insider:
- 500 million Windows 7 licenses have been sold in the last two years.
- There are likely 400 million active Windows 7 users today.
We also know almost 500 million Apple iOS devices have been sold to date.
So the bottom line is that Microsoft has 150% more Windows devices in the market than Apple has iOS devices. When Microsoft rolls out a new OS, it's getting far less uptake vs. the launch of a new software or product launch from Apple.
Also, will most corporate customers want to upgrade to Windows 8 if a half-billion of them have so recently made the move to Windows 7? I'm doubtful.
So, does it matter if people wait on an upgrade to Windows 9? I think it does, and significantly so. Microsoft is hoping to get as many people on its multi-touch operating system as possible as compared with those on Apple's iOS. The more people select an iOS or Android platform, the far less likely they are to opt for a Windows Phone 8 platform. It's also more likely that they'll choose to go with a Mac when there is a new PC upgrade requirement.
What about corporates who don't want to junk their PCs? The concern is that they'll just hang on to 7, or even XP, rather than upgrade and spend needless cash.
Further, don't forget that Microsoft's Xbox is now facing the threat of mobile gaming, just when the company had been hoping to get its multiyear investment up and established as a gaming platform.
If Windows 8 lays an egg, it will spark a crisis in several of Microsoft's diversified business units. If the PC shrinkage is to decimate HP HPQ , Dell DELL and others, why not Microsoft too?
I also think that, as soon as Microsoft's stock drops below $25, the dogs will be howling for CEO Steve Ballmer's head. Expect some heavy pressure.
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