GDP, M&A, EBITDA, P/E, NASDAQ, Econo-thread Part 12

[Colonâ„¢]

Originally posted by DanS
I have been quite impressed with MS lately. They are choosing their shots and most of the initiatives you mention are right down their alley--software and operating systems.

*X-Box is a better console than Sony's and MS should win out in this market in the 4-6 year timeframe -- Asian low-cost, outsourced manufacturing base, American hardware and software IP, by and large

Odd you mention X-Box right after OS's and software. I never understood MS engaged itself in creating the box on which software operates. It doesn't do this with handsets and wouldn't dream of doing it with PC's either.

The introduction to the company on www.microsoft.com is full of references to software and X-Box just doesn't fit in that.

Besides, X-Box may be technically superior but remember this thing isn't supposed to be an engineer's wet dream. (lots of similar projects crashed on the misconception that technical superiority suffices) It's the marketing side that makes the difference in consumer electronics, and Sony has tremendous experience at this field.
Not even mentioning the fact that Sony actually makes a profit out of consoles while MS apparently doesn't. (I don't believe MS released profit figures on the X-Box but the company reportedly only makes a profit out of Windows and Office)

*MS has chosen an excellent way of selling their OS for handsets. Not that creating generic reference designs is a new concept, but it should work extremely well in the current commodity manufacturing environment; MS should have a sizeable slice of this market in the 3-5 year timeframe, if they execute, and the Taiwanese contract manufacturers will be rich because of it -- Lowest cost manufacturing base, American hardware and software IP

You forget looking about what the competition has in its store. (Symbian in this case)
MS allows to alter the userface, Symbian allows to alter the source code as well. Not so long ago MS suffered a large symbolic defeat when Sendo, a British handset producer switched from MS to Symbian, exactly because it couldn't get access to the source code.

And if Nokia should have taught you anything, it is that handset are fashion products as well as just a tool to call people with. Branding and slick design matters and the established manufacturers, as in the case of Sony, are very skilled at this. Next to that does a company like Nokia posses large scale of economies and a very efficient logistics system.

MS strategy of circumventing the established handset producers might work in the lower end of the market where the fashion aspect isn't much of an issue, but MS still lacks scale of economies to get a decent profit margin out of it.

One of the only areas where I'm skeptical where they're heading is MSN dial-up and broadband. The US market is mature for dial up; broadband is too expensive to hit mass appeal. Don't know where they're going to get big numbers.

Broadband seems to be a problematic market in the US yes. I find it stunning that the largest ISP in the US is so recalcitrant to enter broadband, while the telcos in Europe couldn't rush in fast enough.

But I'm not at all concerned with imperial overstretch, as long as they keep to their core competency. Don't know too much about the SAP angle. Perhaps you could enlighten?

What's their core competency according to you? Why is X-Box part of it?

Can they effectively fight Nokia on one front, Sony on another, and Linux on a third one, whilst being distracted by litigation?

MS bought Great Plains vendor of enterprise software a year ago. SAP was also designing enterprise portals which has the potential to replace the Windows desktop.
Next to that MS had plans to design enterprise portals itself.
That created discussion about SAP and MS heading for a battle but I haven't heard much of it since actually.

Its financials are stunning.

They are now, they need to be, we'll see how much of that is left after a decade.

[DanS]

Well, 9/11 ties into it two ways. One is that it hit us economically pretty bad, especially in New York, our immigration clearinghouse.

The second is fear and reality among the immigrant community about documentation and border control. 9/11 challenged the speak no evil, see no evil political compromise of immigration in this country. You must realize that before 9/11, we didn't even follow up on people overstaying tourist/student visas and using bogus social security numbers for work. After 9/11, we're deporting people for similar offenses.

[DanS]

"Can they effectively fight Nokia on one front, Sony on another, and Linux on a third one, whilst being distracted by litigation?"

Sure. Remember that they were fighting on PC OS, Office, and browser software a couple of years ago. Re litigation, they've been focusing on their products amidst even breakup litigation. Very impressive.

MS' core competency is software. I wouldn't limit it beyond that. They do very well in almost all areas of software, including PC games.

"full of references to software and X-Box just doesn't fit in that."

Sure it does. They're just using standardized parts from the PC industry to create the box. Then they're refreshing their bill of materials aggressively and often for price. The OS is merely a form of Windows XP.

"MS strategy of circumventing the established handset producers might work in the lower end of the market where the fashion aspect isn't much of an issue, but MS still lacks scale of economies to get a decent profit margin out of it."

They're pretty early in challenging the handset guys. I've seen the Taiwanese/Chinese manufacturers absolutely crater costs before--in the 1m qty, not the 400m qty. True, I haven't seen them be too sharp with fashion, but I'm not ruling out their abilities in that regard.

[Adam Smith]

DanS:

I met and workied with John Snow a couple of times when I was working for my previous employer. I am a bit surprised at his apparently being named. He is more like a corporate elder statesman than a finance type like Robert Rubin. To me Snow seems better suited to explain corporate / regulatory issues (eg., Clean Air modifications) than Treasury / finance / deficit issues. He appears to be more familiar with microeconomic issues than macroeconomic issues. He has plenty of experience in selling a policy, (as a railroad executive he helped lead the effort to deregulate the railroad industry in 1980, and was also prominent in the ongoinog fight against larger, heavier trucks), but that is what the White House has legislative people for. His Republican credentials are impeccable, and he was probably recommended by Cheney. Snow also has good relations with moderate Democrats, so he is probably going to be closer to Senate republicans than House republicans.

ef, Roland:

I will grant that all measures have noise in them, though its always disturbing to realize how much noise. But my point was that the multifactor measure is more relevant (and lower) than attributing all productivity to labor.

[Colonâ„¢]

Originally posted by DanS

Sure. Remember that they were fighting on PC OS, Office, and browser software a couple of years ago. Re litigation, they've been focusing on their products amidst even breakup litigation. Very impressive.

That's an odd sentence. I wouldn't have expected any else than they would have kept focused on their products.

But you can hardly compare the resources Netscape and Lotus had to their disposal with those of the current competitors.

MS' core competency is software. I wouldn't limit it beyond that. They do very well in almost all areas of software, including PC games.

I know, but X-Box is hardware.

Sure it does. They're just using standardized parts from the PC industry to create the box. Then they're refreshing their bill of materials aggressively and often for price. The OS is merely a form of Windows XP.

You're using very strange thought patterns now Dan. X-Box is hardware, a console, a consumer electronic, not an OS. Or would you call a PDA or a PC a form of OS too?

And it's hardly a matter of jumbling together several standardised parts. The marketing aspect is where the difference is made. How do you design products that are both fashionable and functional, how do you set up the distribution system, how do you communicate with your consumers and so forth. Sony has been succesfully doing this for ages while MS has zero experience.

They're pretty early in challenging the handset guys. I've seen the Taiwanese/Chinese manufacturers absolutely crater costs before--in the 1m qty, not the 400m qty. True, I haven't seen them be too sharp with fashion, but I'm not ruling out their abilities in that regard.

MS isn't the only one who makes use of an Asian manufacturing base.
And consider the logistics issue as well, Dell has been triumphing in PC land because of its superior organisation at this field, and Nokia is admired for its logistics as well.

[Colonâ„¢]

BTW, could anyone tell me why I can't type the [ and ] characters anymore in MS Words? For some reason nothing appear on my screen when try to use them and that forces me to use my browser to write my posts instead. (no need to tell that's very risky, I narrowly escaped a painfull loss of my previous post only a minute ago )

[DanS]

"But you can hardly compare the resources Netscape and Lotus had to their disposal with those of the current competitors."

Fair enough.

"I know, but X-Box is hardware."

When you buy an X-Box, you're buying mostly software. Embedded XP @ $50-75. 2 games @ $50 apiece. Plus any add'l games, which IIRC is about 4 or 5 per console on average. The cost of manufacture is less than $300 nowadays.

"X-Box is hardware, a console, a consumer electronic, not an OS."

I don't agree. Why make a hardware/software distinction that isn't there?

"Or would you call a PDA or a PC a form of OS too?"

They have OSes on them, yes. So does a handheld. There's a lot of software/hardware substitution that can go on.

MS' strategy of getting its OS to support every electronic device is very sound.

[Colonâ„¢]

It's fair enough to say I'm buying a PC for Windows, IE and Civ, but that doesn't make my Philips monitor, my Intel processor or my MS mouse software in the slightest.

By your reasoning MS should be designing and distributing cell phones as well but it simply isn't, it just tries to provide the OS.

MS' strategy of getting its OS to support every electronic device is very sound.

In what way? You haven't really explained what advantages MS has compared to Sony.

[DanS]

"In what way? You haven't really explained what advantages MS has compared to Sony."

It can spread out the costs for developing much of the OS and associated software over many devices.

" By your reasoning MS should be designing and distributing cell phones as well but it simply isn't, it just tries to provide the OS."

Well, it did provide the reference design for handhelds. MS is just going by the structure of the end market. There are lots of handheld manufacturers and the branding is diffuse. There aren't a lot of console manufacturers and the branding isn't diffuse.

[Colonâ„¢]

Originally posted by DanS

It can spread out the costs for developing much of the OS and associated software over many devices.

And that isn't the case with Sony? I'd say it has even larger scale of economies.

Well, it did provide the reference design for handhelds. MS is just going by the structure of the end market. There are lots of handheld manufacturers and the branding is diffuse. There aren't a lot of console manufacturers and the branding isn't diffuse.

Why couldn't it have teamed up with Sega or Nintendo? Either of them would have build the box and MS would have provided the OS, associated software and perhaps games exclusively for that console as well.

[DanS]

"Why couldn't it have teamed up with Sega or Nintendo?"

Why go with high cost producers, who are manufacturing sub-par hardware?

"And that isn't the case with Sony?"

Perhaps at the integrated circuit functional block level. An OS-centric view of the world helps order your business plan very profitably, though.

[DanS]

AS: Thanks for your experiences. Bush (or Cheney) was probably just impressed with the guy sometime in the past and was looking to fit him in somewhere. Did you have any opinion about his style? Is he a heavy?

He's certainly overeducated. Interesting mix. Economics + Law.

[DrSpike]

Stirrer

[DanS]

Fire burn and cauldron bubble...

[Colonâ„¢]

Originally posted by DanS

Why go with high cost producers, who are manufacturing sub-par hardware?

What's the average cost of a GameCube?

Why not advantage of their marketing experience and brand value?

Don't forget Nintendo doesn't only offer a console but also the Gameboy, that has sales figures MS can only dream of.

Perhaps at the integrated circuit level functional block level. An OS-centric view of the world helps order your business plan very profitably, though.

You're just ducking the question aren't you?