Microsoft Corp.’s (Nasdaq: MSFT) soon-to-debut operating system – Windows 7 is one of the company’s fastest, most stable versions of Windows yet, and a pre-release version is generating an overwhelmingly positive buzz.

Market-research firm International Data Corp. (NYSE: IDC) estimates that 78% of enterprise users will have Windows 7 desktops, marking the first time a Microsoft operating system has achieved such dominance since Windows XP, which was released in October 2001.

Current plans call for Windows 7 to be released in late October. Upgrades will range in price from $119 to $219, while new purchases will range from $199 to $319, according to the latest available information.

The product is an important one for the software giant. Back in April,when Microsoft announced the first year-over-year revenue decline in the company’s 23-year history as a public company, the mere confirmation that it was on track to deliver Windows 7 during its 2010 fiscal year was enough to send the firm’s stock up 4% in after-hours trading – even with the lackluster results.

Corporate interest in Windows 7 is strong, according to Bill Veghte, Microsoft’s senior vice president for the Windows business, who said that more than 10,000 companies are evaluating the Windows 7 release candidate, a pre-release version that closely resembles the finished product.

Numbers that large are usually seen only after the company releases the final version to PC manufacturers, Veghte said at a recent UBS AG (NYSE: UBS) Global Technology & Services Conference.

Where Microsoft may find the going a bit rougher is in the consumer market, where the adoption of Windows 7 may be slow due to a predecessor product that created so much ill will that even the mention of its name is enough to make PC users clench their fists in remembered frustration.That predecessor product was Windows Vista.

Before Vista’s release, numerous PC makers affixed small “Designed for Windows XP/Windows Vista Capable” stickers to their products in an effort to assure reluctant consumers they could buy a PC today and upgrade to Vista when it was released. Since then, a lawsuit has been filed in a Seattle federal district court alleging that Microsoft lowered the system requirements to enable a computer to be “Vista Capable” – a change that was allegedly aimed at maintaining sales of current XP-based machines.

The lawsuit brought to light private e-mails exchanged between executives from Microsoft and the PC companies that demonstrated widespread worries about the “Windows Vista Capable” program. One Microsoft executive — Vice President Mike Nash — revealed he purchased a laptop with the “Vista Capable” sticker and was disappointed when he couldn’t run all the features of Vista due to varying tiers of system requirements for the six versions of the operating system.

“I personally got burned,” Nash wrote of his Vista experience. “I now have a $2,100 e-mail machine.”

A resolution in the lawsuit has yet to be reached, but since Vista’s January 2007 release, Microsoft has also been forced to fight it out in the court of public opinion. Last year, the company launched “The Mojave Experiment,” a survey in which a group of consumers who had received poor testimonials on Vista were shown “Windows Mojave,” a supposed new operating system from Microsoft that actually was Vista.

While the Mojave Experiment showed the users actually enjoyed Vista once they used it, the survey itself came under fire in the blogosphere for not presenting a real-world test to the group. For instance, it didn’t take them through an installation of Vista, which was one of the primary criticisms.

The Mojave Experiment “is not about saying Vista is perfect, or that all these people fell in love with it,” Ben Carlson, chief strategy officer for marketing firm. Bradley and Montgomery, told The New York Times. Instead, the experiment was meant to show “what people have heard about Vista is different from the reality.”

When Windows 7 is released on Oct. 22, Microsoft won’t be giving it away to burned Vista users, but does hope to make amends with recession-friendly upgrade prices for anyone who pre-orders the operating system between now and July 11. Users buying new PCs with Vista preinstalled will be issued a voucher for a free copy of Windows 7 now through January 2010.

Just as word of mouth hurt Vista, it will be word of mouth that may ultimately help Windows 7.

“Some would argue that Windows 7 is the first Windows release that we’ve ever done that actually consumes less resources than its predecessor,” Veghte said. Users running the Windows 7 release candidate have found this to be true.

The challenge for Microsoft: Convince end-users and IT professionals that this is true.

Hot Stocks: Microsoft’s Windows 7 Will Win Big Despite a Slow Start ]]> http://www.contrarianprofits.com/articles/hot-stocks-microsoft%e2%80%99s-windows-7-will-win-big-despite-a-slow-start/18796/feed 0 http://www.contrarianprofits.com/articles/bets-on-improving-economy-lifts-wall-st-futures/18133 http://www.contrarianprofits.com/articles/bets-on-improving-economy-lifts-wall-st-futures/18133#comments Fri, 19 Jun 2009 18:47:18 +0000 Contrarian Profits http://www.contrarianprofits.com/?p=18133 U.S. stock index futures pointed to a higher open on Wall Street on Friday as a recent spate of improving economic data beckoned investors back into equity markets for a second day.

Goldman Sachs added Microsoft Corp to its Americas ‘conviction buy’ list on improving revenue prospects, overshadowing a disappointing outlook from BlackBerry smartphone maker Research In Motion Ltd .

Shares of the software maker and Dow component rose 2.2 percent to $24.02 in premarket trading.

The Dow and S&P 500 snapped a three-day losing streak on Thursday as data on the job market and regional manufacturing revived hopes that the recession-hit economy is stabilizing.

“Sentiment is improving and a lot of people are taking the bet that the recession is over,” said Anthony Conroy, head…

Google rubbed more sand in Yang’s eyes Wednesday when it walked away from a plan announced in June to sell advertisements on Yahoo’s pages after the Justice Department threatened to block the deal on antitrust grounds.

Google already has more than 70% of the search-engine driven advertising market. Yahoo has about 10%, according to BusinessWeek.

For Yang, it was a chance to revive falling sales, even if it meant falling on his sword instead of wielding it against its chief rival.

Now, his shareholders are livid. His future is uncertain. And his best option for survival is a partnership with Microsoft Corp. (MSFT) – the company whose generous takeover offer he rebuffed earlier this year.

The dropped advertising deal between Yahoo and Google revealed a major growth problem for each company.

For Google, it shows that the search engine juggernaut has grown so large that it now has far fewer legal avenues of expansion open to it.

For Yahoo, it shows that Yang is running out answers for Google’s market dominance.

Yahoo’s Troubles

Yahoo has had little to cheer about in the past year.

Its sales growth fell to 3% in the third quarter, down from 14% over the same period last year. Profit has dropped in 10 of the last 11 quarters, Bloomberg reported.

Last month, it announced 1,500 job cuts. And, Scott Moore, the senior vice president in charge of the company’s media group, recently announced he, too, is leaving.

In addition to Moore, Yahoo shed five top executives this past summer: Jeff Weiner (executive V.P. of the network division), Brad Garlinghouse (who oversees e-mail and instant messaging), Vish Makhijani (general manager of web search), Qi Lu (top engineer for search marketing) and Joshua Schachter (founder of social bookmarking site, delicious).

In the past year, the company’s stock value has more than halved – from just under $30 per share to under $15 a share, including hitting a 52-week low of $11.25 last week.

During that time, Yang sternly rejected several takeover offers from Microsoft, including a $47.5 billion bid that amounted to $33 a share. The offer at the time valued Yahoo’s share at a 62% premium.

This led to a proxy battle instigated by board member Carl Icahn, who wanted to oust Yahoo’s current board of directors and replace it with candidates of his choosing. Icahn – it should be noted – favored a Yahoo partnership with Microsoft over Google.

“I don’t regret any minute of what happened, even though it wasn’t the most fun thing to go through,” Yang said Wednesday at a press conference, Bloomberg reported.

What’s Next for Yahoo?

With or without the deal, Google’s market dominance will grow. Nothing has slowed it down thus far, and competition such as Yahoo, Microsoft, Time Warner Inc.’s (TWL) AOL, and IAC/InterActiveCorp.’s (IACI) Ask.com aren’t gaining any ground.

Yahoo’s only fighting chance is to team up with one or several of them

Yang’s only real chance may be going back to deal with Microsoft.

“To this day, I’d say the best thing for Microsoft to do is buy Yahoo,” Yang said during an appearance at the Web 2.0 conference in San Francisco, Dow Jones reported. “We’re willing to sell the company.”

Of course, there’s no guarantee Microsoft is still interested.  At the very least, the company could still be jaded from repeated rebuttals in the past year. And the fact that Yahoo also is in talks with AOL won’t help.

JPMorgan Chase & Co. (JPM) analyst Imran Khan wrote in a research note that a good solution would be fir Yahoo to sell its search operations to Microsoft, a deal Microsoft previous proposed and Yahoo rejected.

Striking that kind of a deal would save Yahoo an estimated $1.4 billion and allow it to focus on its aesthetics, such as ad displays, Khan said.

“We think continued investment in search, at the expense of display investment, has given competitors the opportunity to bite into Yahoo’s leading display ad market share,” Khan wrote.

But Yahoo’s board – many of them already feeling slighted by Yang – may consider another move: Have Yang walk to plank.

Since Yang climbed back aboard as Yahoo’s CEO in June 2007, the company’s sales, market share, and market value have all decreased.  That doesn’t bode well for a CEO who could have avoided another horrendous quarter and shareholder insurrection simply by agreeing to Microsoft’s $47.5 billion bid earlier this year.

Source: Yahoo! Searching for Answers After Google Walks Away from Ad Deal

But the tough times are just beginning for Yahoo, which must now prove why it is worth more than the lofty price Microsoft was offering.

“Yahoo is going to be under a lot of pressure,” Peter Falvey, managing director at technology-merger adviser Revolution Partners, told Bloomberg News. “A lot of shareholders are going to say, ‘Hmm, maybe we overreached.’”

Microsoft originally offered $31 per share in either cash or Microsoft stock, a 62% premium to Yahoo’s Feb. 3 closing price. It boosted the bid to $33 a share, appraising Yahoo at approximately $47.5 billion, but Yahoo refused to accept anything less than $37.

Now, at $24 a share, Yahoo as a company is only worth about $33.5 billion.

That means Jerry Yang, Yahoo’s co-founder and chief executive, has the unenviable task of delivering better performance after Yahoo’s bold reprisal. In short, he’ll have to add at least $14 billion in market value to the company if he’s going to justify his decision and prove that rejecting Microsoft’s offer was the right move.

And one doesn’t have to take a very long look at Yahoo to see Yang has his work cut out for him.

Why Yahoo! Isn’t Worth $37 a Share

Last month, Yahoo reported a first-quarter profit of $542 million, or 37 cents per share, up from $142 million, or 10 cents per share last year. It was the company’s first profit increase in nine straight quarters (more than two years). But a big reason for the jump was a one-time gain of $401 million – a windfall from the sale of Yahoo’s stake in Alibaba.com Ltd.’s (PINK:ALBCF), which came from the Asian Internet company’s initial public offering (IPO).

Excluding one-time items, Yahoo reported earnings of 11 cents a share.

Even with the profit increase, the company continued to lose market share to nemesis Google Inc. (GOOG), the leader in Internet search. Yahoo accounts for 21.3 % of all U.S. searches according to comScore Inc.

That compares with a near 60% sway for its rival, Google, which defied Wall Street’s first-quarter expectations by expanding its revenue nearly four times faster than Yahoo. While Yahoo’s sales climbed 14% last quarter, Google posted a 46% jump in revenue. In April, Yahoo all but acknowledged Google’s victory by outsourcing a small portion of its search advertising to its competitor on a two-week trial basis. If Yahoo continues using Google’s search advertising system, it will be abandoning its own “Panama” ad system. Launched in February, the Panama initiative set the company back millions of dollars. Even so, it continues to lag behind Google’s AdSense in terms of revenue per search query.

As it worked to bulk up its search capabilities, Yahoo had earlier shelled out $1.63 billion for Overture Services and $235 million for Inktomi. That’s close to $2 billion for search engine service specialists that would for, all intents and purposes, be rendered moot should Yahoo ultimately outsource even more of its search-related business.

While some analysts believe a bigger deal with Google may already be in the works, any serious collaboration between the United States’ two largest web portals would very likely run afoul of U.S. antitrust restrictions. Google already places ads on more than 67% of searches. The addition of Yahoo would expand its influence to 89% of searches, according to statistics from Hitwise. Microsoft said last month that Google would command more than 90% of the search advertising market.

“While Yahoo may pursue a Google search partnership as a way to appease shareholders through enhanced cash flow, we believe such a deal would face intense anti-trust scrutiny,” Clayton Moran, an analyst with Stanford Group Company, told IDG News Service. “In addition it would cede control of search to Google.”

Moran does not believe Yahoo’s stock will reach the $37 a share value over the next 12 to 18 months.

There have also been rumors that Yahoo will join forces with Time Warner Inc.’s (TWX) AOL or News Corp.’s (NWS) Fox Interactive Media business units. According to the details that have emerged so far, Time Warner would merge a large portion of AOL’s operations with Yahoo and make a cash investment in exchange for a 20% stake in the resulting company. Yahoo would use that cash infusion to buy back some of its own stock.

However, when it comes to Web-search market share, AOL currently ranks fourth, behind Google, Yahoo and Microsoft. So the company that emerged from that combination would be more of a content player than it would be a competitive Web-search firm.

Regardless of what Yahoo does to try to validate its decision to rebuff Microsoft, investors are already working themselves into an apoplectic frenzy over the move. Some Yahoo shareholders had already sued the company’s directors even before Microsoft decided to walk.

Enraged Yahoo shareholder Eric Jackson said Sunday that he planned to rally shareholders to withhold their votes from all Yahoo directors at the company’s annual meeting, which has not yet been scheduled. Jackson leads a group of about 140 shareholders who together own 2 million Yahoo shares.

“Significant value was left on the table,” said Jackson, who heads a group of irate investors who together own about two million Yahoo shares.

Microsoft’s Next Move

In an ironic twist, Microsoft – like Yahoo – must now answer to a less-than-thrilled constituency.

Microsoft Chief Executive Steve Ballmer said April 24 that his company was willing and able to walk away from its bid for Yahoo.

“We’re prepared to move forward without a merger with Yahoo,” Ballmer said at a technology conference in Italy. “We think the best way to move forward quickly is to come together with Yahoo. Hopefully that works. But if it doesn’t, we go forward. Time is money.”

He lived up to his word Saturday, scrapping his company’s a $47.5 billion offer that valued Yahoo shares at a 70% premium to their January value after three agonizing months.

But now the man in charge of Microsoft must explain how the company plans to improve its eroding Internet business – which lost $228 million in the first quarter alone – without Yahoo.

Instead of the stock-price rally that many companies enjoy when they walk away from costly deals, Microsoft’s shares closed the day yesterday at $29.08, down 16 cents – hardly the vote of confidence the company would have wanted to see.

Since the company obviously has plenty of cash on hand, it may be a good idea to seek out a more agreeable partner.

“I’m looking for Microsoft to get aggressive with a buying spree,” Gartner analyst Allen Weiner told IDG. “I think Microsoft should do something quickly to show the world that [the] Yahoo bid wasn’t a setback.”

The company could try to strike a deal of its own with Time Warner or News Corp., or perhaps even with the trendy Facebook.com. Other analysts suspect Microsoft may be beckoned back to Yahoo’s rescue if the company fails to right its course by year’s end.

“Should Yahoo miss expectations in 2008, we would not be surprised to see MSFT come back to the table,” RBC Captial analyst Ross Sandler said in a report yesterday morning.