By Tedra DeSue
Last week, after announcing that it had beat earnings estimates for the third quarter of fiscal 2012, Microsoft (MSFT) saw its stock price increase by at least 5%. At that time, it was trading around $32, which is the highest it has traded since December of last year.
Whether or not the company stays on the path of beating earnings estimates depends on many factors. The main factor relates to the much-anticipated release of several products, including Windows 8. Considering the roll out of this operating system, as well as other products this year, there is little reason to doubt that the company's financials won't continue to improve over the near-term, which gives investors a reason to buy.
The tech giant saw several improvements in its finances during the third quarter of fiscal 2012, which ended on March 31. This includes revenues that rose to roughly $17.4 billion. Furthermore, Microsoft's operating income totaled $6.37 billion, which was a 12% increase from the prior year period.
Since the third quarter of 2011, Microsoft's revenues increased by 4.7%. This has had a trickle down effect to the company's bottom line. In beating estimates, Microsoft's earnings per share were $.60, which was higher than the $.57 that the estimates that been predicting.
Also, Microsoft's net income and diluted earnings per share for the quarter were $5.11 billion, compared with $5.23 billion in the prior year period. This figure was the main disappointment coming from the firm's 2012 Q3 earnings.
Microsoft is enjoying the increase in revenues from many of its divisions, especially those from its Windows and Windows Live division. Those revenues increased to $4.62 billion during the third quarter of 2012.
This increase is important because of the company's planned release of Windows 8. Scheduled for the fall of 2012, the company is likely to see an upswing in profits from consumers who have anxiously awaited a new release for its operating system.
For the PC user who is accustomed to solely or mainly computing with a Window's product, Windows 8 is being anxiously awaited. Also important are Windows 8 powered tablets. These will give Microsoft a key entry into the tablet world, which is one of the fastest growing areas of the tech industry. Currently Apple's (AAPL) iPad and Samsung's Galaxy tablet powered by Google's (GOOG) Android, dominate this field.
Scheduled for release by the end of the year is Microsoft's Windows 8 ARM tablet.
Microsoft will not become the leader just through Windows 8. In fact, that is highly unlikely, considering that Apple and Google so far cover about 50% of the market. Also, there are many other companies that are clamoring for a piece of the tablet pie, such as Acer, Dell (DELL) and Hewlett-Packard (HPQ), and they will create even more competition for Microsoft.
The fact that Windows 8 can be used on smartphones and tablets is still a boon for Microsoft. Many naysayers have said they didn't like previous versions of Windows on their phones, and don't want Windows on their phones and tablets. Many are also skeptical about having a touch-screen version of Windows running on their PCs. However, in the age of smartphones and tablets powered by the iOS by Apple (APPL) and the Android by Google , many consumers are looking for alternatives and the Windows OS may offer just the answer.
Investors should also consider the impact of the Nokia Lumia 900. The smartphone was a key collaboration between the phone manufacturer and Microsoft. It took place in a somewhat "shotgun wedding" in which the companies agreed to work together without going through a gamut of legal wrangling usually typical with these kinds of deals. In early 2012, the agreement was announced by both companies, in which officials from both companies noted how important the collaboration was to both of them. Since the phone was made available in early April, minus some marketing hiccups, it has been widely popular.
It's clear that Microsoft must contend with the dominance of Apple and Google in the tablet and smartphone arena. Oracle (ORCL) and Intel (INTC) are no longer the major forces that can derail Microsoft. It cannot be stressed enough that the roll out of Windows 8 is imperative to its future growth. On that same note, its future as a computer giant now lies heavily in its ability to compete in the smartphone and tablet market in addition to the PC market, as far as software is concerned. It must also contend with the global demand for computers, which has been dwindling over the years. By producing the most cutting-edge products with software that is as impactful as Windows 8 is hoped to be, the company can continue its gains.
At this point, Microsoft's investment in the key, growing sectors of the tech industry, as well as its success over the past few quarters, indicate that it is on the right path. Again, this makes it worthy of investment. Billionaire investors agree with us too.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.