Microsoft (MSFT) has shown a remarkable rebound this year, and its prospects look great for the future. Currently valued at around $32 per share, Microsoft shares are up 25% over the past year. Considered by some to be among the rusting giants of the tech industry like Yahoo! (YHOO) and AOL (AOL), Microsoft has shown incredible resilience in the wake of late Apple (AAPL) Steve Jobs's comments that the personal computer is dead.
Microsoft's latest third quarter earnings report boasts an earning of $5.11 billion (60 cents per share on a $17.4 billion revenue). Following the report, Microsoft shares jumped 5% this past Friday alone. There are several reasons for this uptick, and these reasons lead me to be very optimistic about Microsoft's fourth quarter, and its future after that.
The first and most fundamental reason for Microsoft's success is a dramatic increase in sales. Microsoft's corporate customers, its major market, had become reticent about investing in Windows upgrades after the clunky and buggy debacle that was Windows Vista. However, this reluctance has diminished after the advent of a much cleaner and more stable Windows 7, spurring a 4% boost this quarter in Windows and Windows Live business. The company also saw sales of its Office suite rise 9% over the past year. Servers and business tools have seen a 14% rise in sales over the same time span. Microsoft claims that Windows 7 is used on 40% of the world's business desktops.
Now is the ideal time to invest in Microsoft. With the momentum of recently increased earnings and corporate consumer trust, the company has a great base to propel its launch of new upcoming products. At CES, Microsoft announced its upcoming Windows 8 upgrade, highlighting the features which will allow Microsoft to compete in the mobile phone market. Microsoft CEO Steve Ballmer showed tremendous leadership and market awareness, highlighting the features of the Microsoft marketplace which appeal particularly to corporate customers. Not only that, Microsoft's partnership with Nokia (NOK) has resulted in the Nokia Lumia, Microsoft's contribution to the phone market. The phone has already shown tremendous results and reviews in the European market and is now making its way into the U.S. With Windows 8, smartphone operating system advancement, and its increased focus on competition in the tablet arena, Microsoft will undoubtedly see a dramatic rise in price this upcoming quarter.
Aside from these sources of optimism, Microsoft is incredibly unique in the tech market in that it is able to create mutually beneficial synergy among a variety of its sector partners and giants. Its competitors do not share this advantage. Apple, for example, is the largest source of Apple products. If a consumer needs his iPhone or iPad serviced, he goes to Apple. Therefore, the company is largely isolated. Not to mention, Apple's recent lawsuit over an ebook monopoly does not bode well for consumer trust or company revenue and share price. This is not the case with Microsoft. Microsoft sales increases mean an increase in business for its retailers, resellers, and related manufacturers such as Dell (DELL) and Hewlett-Packard (HPQ). The resultant increase in business for these manufacturers reciprocally results in increased business for Microsoft. This mutually beneficial dynamic will create a surge which will both propel and support Microsoft's successes.
Recent statements made by Microsoft's Jeffrey Sutherland clearly show Microsoft's direction toward catering toward and dominating the corporate market, and more importantly, it highlights Microsoft's power to influence business in its sector, creating synergy with other companies. Microsoft's upcoming Windows 8 devices, which operate on hardware constructed by corporations such as Nvidia (NVDA) and Qualcomm (QCOM), will create reliable infrastructures and systems for companies. These management systems will be able to further integrate employees' user technologies. Microsoft's major competitors do not enjoy this optimism because of their independence from other manufacturers in the sector.
To conclude, Microsoft has shown a new commitment to reducing operating costs, and this new commitment promises to do very well for the company's revenue reporting and profit margins. It has lowered its estimated operating costs for the year by $400 million. Lisa Nelson indicates that this lowered estimate is the result of a new cost-management philosophy at the company. If this trend continues, Microsoft will only continue to post larger earnings and larger earning margins.
In short, Microsoft is a sound investment, and this is the perfect time to invest in it. Its prospects look good, and these prospects look like they will be realized in the near future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.