A picture of the new Microsoft, one transformed from a software factory into a maker of devices and online services, came into sharper focus.
The old Microsoft had an almost unmatched ability to chug out profits by selling software on discs to customers. The new Microsoft has an expanding portfolio of hardware products with decidedly lower margins.
And, typically, they are doing it wrong!
From the article:
Microsoft management has been coaching Wall Street for some time to expect major changes in its business as it refashions itself to what it calls a devices and services company.
Apple, of course, is emblematic for that type of company. Apple’s success in new product categories like tablets and mobile phones – and Microsoft’s weakness in those areas – is a big reason Microsoft has taken the once unthinkable step of making its own computers and mobile phones, although both crimp profit margins.
So, Microsoft wants to become Apple but by making things with lower margins. But that is the role that Samsung has taken, effectively copying Apple and becoming the only other company making a profit in the mobile device world.
Microsoft is going from a gross profit margin of over 80% to one of 9%. Apple’s profit margin is more than 4 times greater than that at 37%.
Almost all the growth came from the only really innovative device they sell – the Vbox – but for which they make hardly any profit.
I wrote The PC era ends with MS as a gaming company? three years ago. Looks more and more true.