Microsoft is gearing up for the official launch of Windows Phone 7 in 2 days time, and have encountered a mixture of optimism and deep pessimism.
Despite having massive revenue from other ventures, Morgan Stanley rightly notes that it is all about sentiment, with analysts and journalists increasingly noticing that they are using less and less Microsoft products and pricing the stock accordingly.
In an analyst note Morgan Stanley analysts Adam Holt, Jennifer Swanson and Melissa A. Gorham said:
Expectations for the Windows Phone 7 (WP7) could hardly be lower, with MSFT’s share eroding steadily from 10% in Q1-09 to 5% in Q2-10 at the hands of Android and the iPhone. While MSFT generates ~1% of revenue from Mobile, WP7 is still a pivotal release. A successful release could stem the tide of negative sentiment on MSFT’s positioning in Smartphones – one of the largest and fastest-growing markets in tech. With Mobile losing money and share, it is getting no or even negative equity value – but is a call option that can reverse the recent multiple compression. To be successful, MSFT will have to deliver:
1) better mobile functionality,
2) aggressive branding/ distribution,
3) the strength of the MSFT franchise, and
4) leverage with the enterprise.
The company has a 9-12 month window to show traction, and we are very cautiously optimistic.
With cautious optimism and a 12 month window for Microsoft to show that they have got what it takes, Morgan Stanleyâ€™s analyst opinion appears much more realistic that ones we saw recently saying Microsoft should split of their Xbox division, and I do not find much to disagree with it.
What is certainly true is that is seems much more than Microsoftâ€™s involvement in smartphones appear to be at stake with Windows Phone 7, which should make the company pretty motivated to throw everything behind the division.