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Microsoft Ratings: Bill Gates Banging Head Against Apple iPad?

Somewhere, Bill Gates is banging his head against an Apple iPad and the Android-based Galaxy Tab.

Thats because financial analysts are worried that Gates baby, Microsoft Corp., is falling too far behind its rivals, especially in the tablet computer market. Those fears on Monday prompted two brokers FBR Capital Markets and Pacific Crest to downgrade the software giants ratings from buy to neutral. Goldman Sachs and Janney Capital earlier this month made the same move.

The problem for Microsoft is it lacks a compelling growth strategy,” Brendan Barnicle of Pacific Crest wrote in a client memo. Yes, Microsoft is cutting costs, offering dividends and doing buybacks. Each of those is encouraging” but not enough, Barnicle wrote. 

Analysts such as Barnicle are concerned that Microsofts PC sales are slowing, and that the company isnt keeping up with the computing mobility trend. Microsofts smartphone initiative failed miserably earlier this year, even as the company tries again to compete with Googles Android and Apples iOS, via the Windows Phone 7 operating system. The platform is receiving rave reviews, but thats just among smartphones. Microsoft needs to find traction in the tablet computing sector sooner, not later, analysts say.

Heck, even AT&T wants Windows Phone 7 rather than the clunkier desktop counterpart, Windows 7 on any tablet devices Microsoft produces. Microsoft CEO Steve Ballmer apparently disagrees with AT&T, so itll be interesting to see how the drama plays out.

David Hilal of FBR nailed part of Microsofts challenge in his note to clients.

 ”… (G)one are the days when Microsoft could be late to the market but, through immense resources, catch up and be relevant,” he wrote. “The vendors it is catching up to today are much stronger, and the adoption curves are much greater, thereby exacerbating the problem of being late to market.”

Shares of Microsoft were trading 16 cents lower at about 2:45 p.m. Eastern, reaching $25.22.


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