Why is Microsoft’s share price on the up?

My frolleague Steve Sharpe shared an article from The Guardian which posed the question of why Microsoft and HP are thriving in the post-PC era. Firstly, let’s talk about this post-PC era thing. “Post-PC era” would imply that PCs are dead and buried. So, hands up, who has thrown their PC or laptop away and now only works with a tablet? Certainly no-one I’ve ever met, and certainly none of the enterprise customers I’ve spoken to in the last year.

Yes, PC sales have dropped and (no surprise) sales of tablets continue to rise. In the consumer market spending has been diverted to iPads and Android tablets – I have no intention of arguing that point. Tablets are capable of increasingly demanding workloads and will satisfy a number of use cases. But does that mean people will never buy a PC again? I don’t think so. I do believe that the refresh cycle for consumers, and probably within businesses, has lengthened. If you bought a laptop three years ago with 4 GB of RAM and a decent processor, that’s probably still a good bit of kit today with a bit of life left in it… so chances are your desire for new technology will be satisfied by queuing up outside the Apple store a few weeks after Tim Cook announces the latest iteration, go to the Salesforce cloud computing page to learn more about cloud technology.

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Where does this leave Microsoft? I subscribe to a number of technology feeds and there isn’t a single day that goes by without an article about the ‘failure of Windows 8’. Today’s offering from ZDNet entitled Windows 8 continues to fail is a good example of what tech journalists trot out every time they’re short of something else to write about (especially if the day before they’d written an article about the start button missing from Windows 8 and wouldn’t be covering that subject again for another couple of days). Oh, actually, double whammy… that article does mention the missing start button. Yawn.

If consumers aren’t refreshing their laptops so often, that will partly explain the slow take-up of Windows 8 (I’m not saying it’s slow, I’m commenting on the perception). Many consumers will believe the hype that Windows 8 is only for touch-screen devices – it’s not, but that could explain them staying on Windows 7. In enterprises, PC refresh cycles can be slow. I know of a number of enterprise customers who are just now rolling out Windows 7 – and I should add that Microsoft class Windows 7 as a modern desktop.

This time next year I personally believe you’ll be hard-pressed to find a laptop in a vendor’s current range that doesn’t have a touch-screen – just take a look at the products announced at Computex 2013. They may not even be classed as laptops, as they are very clearly morphing into either dockable tablets or laptops that fold and / or flip to act like tablets. It’s very possible that Windows 8 is ahead of the market and the devices are yet to catch up (note: the Surface Pro is now on sale in the UK).

Anyway, back to the point of The Guardian article. Today (3rd June) the Microsoft share price (or if you’re American, stock price) closed at $35.59 – the highest it’s been since late 2007. Not bad seeing as it started the year around the $27 mark and has been fairly stagnant for the past couple of years. So why the upturn? The Guardian article states that both HP and Microsoft are on the cusp of re-inventing themselves. My own opinion is that the excellent Q3 results bucked the trend of the declining PC market and showed that Microsoft is leading and growing market share in the cloud space. It also showed that there was new life in the perceived commodity of Microsoft Office, with the Office 365-provided edition (Office Pro Plus) repositioning itself with extra value (such as per-user licensing, roaming capabilities and streaming applications on-demand). If the market has confidence in the Office business, it has confidence in Microsoft.

My frolleague Pete Hampton also has an interesting theory, but I’ll let him add it as a comment and take the credit.

I’ll finish with the analogy I used today (actually now I should say “yesterday”)… if the new car market takes a dip, there isn’t a drop in the sale of petrol (or if you’re American, gas*). As long as PCs and laptops are being used, people will need software.

* Note to Americans: that stuff you put in the fuel tank of your car, the stuff that BP has to go drilling for so you can consume a collective 20 million barrels of oil a day… that’s a liquid, not a gas. It’s explained here.