Sunday, May 04, 2008

Shareholders Should Consider Microsoft's Latest Retreat

Updated: May 5, 2008 17:40

New York City 036590

New York Times' writers Miguel Helft and Andrew Sorkin consider what the withdrawal of Microsoft's bid for Yahoo could mean for investors in those technology stocks. It is important for investors in other computer-industry shares to learn from Microsoft's mistake.

Takeover bids like this one seem destined for the dustbin almost from the start. After all, two wrongs rarely ever make a right. The potential synergy generated from the combination of Microsoft and Yahoo did not seem to materialize out of laptops carried by Steve Ballmer or Kevin Johnson. Jerry Yang probably never seriously considered the sale of his precocious teenager, Yahoo.

A certain number of investors in both technology firms will reduce their share holdings. Tech stock investors however, will not so easily abandon technology investments altogether. Of course a certain percentage will say that Apple, Inc. shares are currently too high priced. The same might be said for Google (GOOG) or Research in Motion (RIMM) share prices. Intel (INTC), IBM (IBM), Oracle (ORCL), or Cisco Systems (CSCO) may attract new investors. Further down the food chain, Broadcom (BRCM) just reported excellent earnings, beating analyst's expectations. Adobe Systems, Inc. (ADBE) is still sailing along on software revenues.

Sailing into Sunset 18958

A billion dollars reallocated to other technology shares could start significant momentum in the NASDAQ.

It is about time investors moved out of sleepy Microsoft (MSFT) and Yahoo (YHOO) shares and into businesses demonstrating market prowess with successful new products. The same tired, cluttered Yahoo search or Flickr® web sites, the bloated Vista® operating system, or a Zune® music player are not what investors are seeking in a technology company.

People are buying stylish iPhones®, downloading music and video from the classy looking ITunes® site, and searching the Net using Google. The pace at which computer buyers are choosing Apple laptops and desktop computers is also increasing. Many new Apple customers are naturally switching from Windows. Of course the numbers are small compared to overall market shares but look at the profits Apple makes on sales compared to Dell (DELL) or Hewlett Packard (HPQ). The story is being told in the profit margins moving forward, not the history book entries for Microsoft and Yahoo.

Disclaimer: For years the author has owned shares in many technology firms, including most of those mentioned in this article. His business computers use OS X, UNIX, and various versions of Microsoft Windows, sometimes all at once!

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