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Why I Won’t Buy Microsoft Corporation (MSFT)

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Although tempting, a stock like Microsoft Corporation (NASDAQ:MSFT) may not be your best use of capital. The company has yet to meaningfully capitalize on the mobile computing revolution, which has taken a nasty bite out of PC sales. Last quarter, IDC found that PC sales declined by 13.9% year over year, primarily driven by poor reception of Windows 8, coupled with the continued assault from tablet computing. Given these factors, Microsoft’s stock price remains entrenched in a “lost decade,” lacking the necessary catalysts for investors to justify a higher valuation.

Ahead of its time
Microsoft Corporation (MSFT)Windows 8 is a touch-friendly operating system that borrows successful elements from the tablet experience. Things like the Start Menu have been replaced with a home screen that resembles a tablet user interface. To fully benefit from all that Windows 8 has to offer, it requires a PC with a touch screen. The issue with the preposition is that touch-enabled PC devices have either remained in constrained supply or command a premium over conventional PC designs. Additionally, Microsoft Corporation (NASDAQ:MSFT) has done a poor job educating consumers why touch is essential to the Windows 8 experience. In this context, it’s easy to why Windows 8 sales are off to a worse start than Windows Vista, and why Microsoft’s stock hasn’t done much of anything since Windows 8’s debut.

Unnecessary confusion
Aside from an absurd writedown, Windows RT could quite possibly be the worst direction Microsoft has gone in recent years. Windows RT is powered by ARM designs, meaning it is not compatible with legacy Windows applications, which run on Intel Corporation (NASDAQ:INTC) x86-powered designs. This fundamental difference has led to confusion between Windows 8 and Windows RT, resulting in the less-than-stellar reception of Windows RT. Ultimately, I believe that Microsoft Corporation (NASDAQ:MSFT) will have little reason to keep Windows RT in its stable once Intel delivers compelling tablet processors. The prospect of Intel Corporation (NASDAQ:INTC) in a $200 to $300 Bay Trail-powered tablet running the full version of Windows 8 could resonate quite well with consumers and potentially provide a catalyst to Microsoft’s stock price.

Just a hobby
Having ended the year with less than a 3% share of the smartphone market, the Windows Phone franchise remains a hobby that will likely have little impact on Microsoft’s stock price for the time being. However, this hasn’t stopped Microsoft Corporation (NASDAQ:MSFT) and Nokia Corporation (ADR) (NYSE:NOK) from pursuing growth in emerging markets, where smartphone saturation remains low. Currently, Nokia accounts for nearly 75% of Windows Phone devices worldwide, indicating the importance of Nokia Corporation (ADR) (NYSE:NOK)’s success for Microsoft’s smartphone ambitions.

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