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Microsoft Corporation (MSFT) Needs Brain Surgery

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Microsoft Corporation (NASDAQ:MSFT)Microsoft Corporation (NASDAQ:MSFT) was falling by almost 9% on Friday after the company reported disappointing results the day before. Wall Street tends to overact to these kinds of things but, make no mistake, this is much more than a transitory setback for the company. Microsoft Corporation (NASDAQ:MSFT) has some really serious long-term problems that require a change at the top.

Scratching the Surface

Microsoft recently reduced the price of its Surface tablets to $349 from $499, with the version that includes the keyboard dropping to $449 from $599. It also took a $900 million charge to reflect unsold inventory of the device during the last quarter. Microsoft Corporation (NASDAQ:MSFT) doesn´t seem to find its way in mobile, and this has some serious implications for the future of the company.

According to Gartner, PC sales declined 10.9% in the second quarter of the year; this was the fifth consecutive quarter of declining PC shipments. Tablets have been gaining market share versus PCs for a long time, and the trend has not been reversed by Windows 8. Far from that, Microsoft Corporation (NASDAQ:MSFT)´s new operating system has received lackluster acceptance from customers, and it may even be accelerating the decline of the PC industry.

When it comes to tablets, Apple Inc. (NASDAQ:AAPL) is the undisputed leader in the high-end segment of the market, and the iPad Mini has been a big success for the company by providing a more affordable alternative to larger iPad versions.

At the same time, just as in the smartphones markets, Google Inc (NASDAQ:GOOG) has leveled the playing field with its enormously popular Android operating system. Second quarter tablet shipments have not been released yet, but according to IDC Android tablets surpassed iOS devices in the first quarter of 2013.

Apple Inc. (NASDAQ:AAPL) is still the biggest vendor in tablets with a 39.6% market share, but companies like Samsung, Asus and Amazon.com, Inc. (NASDAQ:AMZN) have been outgrowing the Cupertino giant thanks to high demand for their lower priced products, especially in emerging markets.

Tablets are killing PCs, and the industry seems to be becoming a competition between Apple Inc. (NASDAQ:AAPL) and a group of manufacturers like Samsung that capitalize on the popularity of Android to gain market share in the low-end of the pricing spectrum.

In the mobile paradigm, platforms and ecosystems are more important than devices per se, and this puts Microsoft Corporation (NASDAQ:MSFT) in a very uncomfortable position as Apple and Google Inc (NASDAQ:GOOG) continue to expand their dominance.

Culture and Management

Microsoft is losing the consumer, the company is still quite strong in the corporate sector, but that´s hardly enough to regain its former glory. The company, which used to rule the technology industry, missed many of the most important trends in the industry over the last decade: mobile, search, online advertising and social networks, among others.

Importantly, it wasn´t because the company didn´t have enough resources to capitalize them that Microsoft Corporation (NASDAQ:MSFT) missed these opportunities. On the contrary, its near monopolistic position provided by Windows and Office ten years ago meant not only big, fat profit margins for the company, but also an invaluable strategic asset in terms of competitive strength.

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