http://blogs.wsj.com/marketbeat/2011/05/26/einhorn-effect-microsoft-shoots-higher-after-hedge-fund-endorsement/?KEYWORDS=Nokia

Einhorn may have a point with what is going on with Microsoft. Wall Street operates by perception. It does not matter if Ballmer is a smart or a good guy, perception is reality. The tragedy of the stock market is that perception is reality and facts do not seem to matter.

It does not take a genius, an experienced stock investor, or an MBA to see there are some serious issues with Microsoft’s wireless and computing platform strategies. In short, in the last 15 years nothing Microsoft has done in terms of wireless strategy and tablet strategy has gained traction.

Microsoft’s cash and revenue positions are strong. Hence, not a lot of people seemed worry. The problem is that if you look at how the telecom and computing industries are trending, we will see that there is a convergence of functions. Convergence is an overused term; I have lost count of how many times the telecom and infocom industries have been converging in the last 30 years. The secret behind convergence is that every industry goes through a convergence of business and technologies every few years.

However, what is going on in the telecom and infocom industries is more rapid than anything that has occurred in the industries in the last 15 years. Where is Microsoft?

Microsoft was actively promoting the tablet back in the 1990s but the idea died because of a lack of need and content. Microsoft recently joined forces with Nokia and that appears to have gone absolutely nowhere.

I hope Microsoft does not end up in the same place as Nokia is at this time.

Microsoft’s biggest problem with the telecom and computing industries is that the telecom/infocom communities have moved towards a distributed processing environment (think cloud computing) and Microsoft’s current revenue stream is primarily based on licensing operating software (think individual desktop and laptop platforms).

Microsoft needs to find a way of creating a revenue stream that can replace or vastly complement its current software licensing revenue stream. Microsoft certainly cannot make a pile of money selling apps like Apple.

Unlike Apple, which sells devices and content, Microsoft is not in the same business and hence, is not positioned to capture significant market share in the emerging telecom/computing platform environment. Steve Ballmer may know his software and his company but he seems to be struggling to find a way for Microsoft to gain market leadership in this new market.

If Nokia can figure out how to make an exciting wireless handset and tablet, then Microsoft may actually come out on top. The problem in this situation is that Microsoft is dependent on another vendor for help; not a comfortable position to be in.

As I write this, Nokia just issued a press release warning investors that it might not book a profit in its core cellphone business. Now that is not good news for either Nokia or Microsoft. However, Nokia should not give up the ship yet. In the world of restructuring; “it is not over until it is over”. That being said, Stephen Elop, CEO, of Nokia has been aggressively making changes in Nokia. However, Nokia is a large corporation and the company’s own processes and relationships possess an inertia that causes resistance to change.