Until 2007, Bill Gates was the richest man in the world by virtue of his stake in
Microsoft MSFT +2.29%. Then Carlos Slim Helu, the famous Mexican investor, aided by his stake in cell phone operator American Movil, wrested the crown from Gates. According to
Bloomberg , yesterday Gates became the richest man again, although
Forbes, which has been tracking Gates’ wealth for the past quarter-century, says that the Microsoft co-founder has not yet regained the top spot.
On the surface, the change in fortunes seems perverse; mobile phones are expanding in Mexico whereas Microsoft’s biggest weapon Windows 8 is a dud. During the earnings call
Dell DELL -0.22% which is one of Microsoft’s largest customers for Windows 8 commented that Windows 8 had not led to the growth they had hoped for. The conference call was polite, but my take from the tone and data from the conference call is a confirmation that Windows 8 is a dud. Windows 8 was supposed to make Microsoft competitive with
Apple AAPL -0.27% in tablets. The reality is surface tablets from Microsoft languish while iPads from Apple remain the kings.
The trigger behind the recent rise in Bill Gates’ wealth is Xbox. Unless you have been under a rock you would know that Xbox has become a lot more than the gaming console of years past. Microsoft has been trying to position Xbox as an entertainment hub. Excitement is building over the Microsoft event scheduled for May 22 Microsoft is expected to unveil the successor to Xbox 360.
Security around the next generation Xbox has been tight but speculation abounds. There is no confirmation of what the next Xbox will be called, but the media has almost universally dubbed it Xbox 720. Speculation is that Xbox will be powered by an 8-core CPU, will support WiFi, will support Blu-Ray, and will require an internet connection to play games. Graphics is expected to be powered by an AMD Radeon card. The most interesting speculation is that Xbox is specifically designed to become a set-top box for television.
Ironically, the recent surge in Microsoft was immediately preceded by
bad news from the research firm IDC that only 67.3 million PCs were shipped in the first quarter of 2013. This was a 13.9% decline from the same quarter in 2012 and was the steepest decline in any one quarter.
The impending announcement on Xbox started a rebound in the stock after the fall on the PC news. The upward momentum was accelerated when it was revealed that valueVa disclosed that it had taken a $2 billion stake in Microsoft. Once the technical breakout occurred over the $30 level, the stock started a stealth rally boosting the fortune of Bill Gates. On the other hand, American Movil’s franchise in Mexico has been increasingly coming under attack reducing Slim’s fortune.
From an investment perspective, American Movil has poor fundamentals and the recent rally in Microsoft is overdone.
Worth watching is the stock of GameStop. GameStop is a retailer of electronic games. As the transition from packaged games sold at GameStop to games that are online or are downloaded takes place, GameStop should go the way of Blockbuster. But the mechanics of the stock market are perverse; 46% of the float of GameStop has been sold short. This has led to a massive short squeeze making GameStop one of the top performing stocks.
Disclosure: Subscribers to The Arora Report are long Apple.
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