Microsoft (MSFT) has hit the news big again this week. It has announced a few new products that could increase sales and boost its share in emerging markets, so things are looking very good for Microsoft. Additionally, it has been a stable company for a good amount of time now. With these two things in mind, I feel quite comfortable recommending Microsoft stock at the moment.
Chief Executive Officer Steve Ballmer recently launched Microsoft's first-ever tablet, "The Surface." It contains features that make it stand out in the industry. For example, it has a built-in kickstand and magnetic cover that also acts as a touch keyboard. This tablet is similar to Apple's (AAPL) iPad, so Microsoft is hoping to become an even bigger competitor for this company.
Ballmer sent a memo to Microsoft's employees after the announcement of The Surface, sharing his enthusiasm and excitement for the future of Microsoft. This type of public attitude from important management positions is a good sign that the company is making innovative progress and headed in the right direction.
Not everyone has the same level of confidence in the tablet. Some analysts believe there is no room in the tablet market for Microsoft's Surface, but I must disagree. While the iPad is a very popular tablet, it is essentially the only all-encompassing tablet on the market. Some consumers prefer the Microsoft brand over Apple, furthermore, so I foresee Microsoft's Surface to be a big success. As I mentioned, the features should also help the Surface do well. It is similar in weight and thickness to the iPad, but it actually has a larger screen and supposedly has a better touch keyboard. These features will be attractive to consumers and help Microsoft's tablet become an even bigger success.
Microsoft actually unveiled two versions of the product, one running on Windows 8, and the other running on Windows RT. The Windows 8 version will run on chips that are common in PCs. The RT version will run on chips made by NVIDIA (NVDA), which are common in cell phones and other tablets.
Microsoft has been known to release hardware for the sole purpose of boosting the software's popularity, and this tablet seems to be quite consistent with this strategy. For example, it has been suggested that Microsoft is only releasing the Surface to increase the popularity of Windows 8, and once it achieves this, it will stop production. I do not think this is true, but it is something people should critically consider.
In my opinion though, Microsoft needs to follow through with this launch. Microsoft fans will have high expectations, and the company cannot fall short if it hopes to compete with Apple's iPad. Unfortunately, there are a few signs that Microsoft may not be as far along as it initially appears. In the press release, Microsoft omitted the most important details about the product, including the date of release. As it does not want to commit to a release date, this may suggest that Microsoft is still fixing up design issues and other problems. This means there is still time for Microsoft to encounter problems before the product is officially released. If Microsoft takes a long time to release this tablet, furthermore, it just gives Apple more time to increase its strength in the market.
Microsoft also failed to mention a starting price point. The company may be unsure of the costs to produce each unit, or the expected price may be quite high, hurting its ability to remain competitive. Once again, this is merely speculative, so investors should watch closely while this situation continues to develop.
Microsoft's other big news item is that it announced Windows Phone 8. This new mobile operating system will be able interact with laptops running Windows 8. This relates to Microsoft's plan to attract businesses looking to adopt a company-wide technology network. Since Microsoft is focusing on the corporate smartphone and technology market, it may be able to find a niche market where it does not have to compete head-to-head with the iPhone. I believe this strategy will prove profitable for Microsoft.
Microsoft is also focusing on the common core between its PCs, tablets, and smartphones to increase the number of applications invented for them. There are currently about 100,000 applications for the Microsoft software, which is significantly less than the 500,000 for iOS and Google's (GOOG) Android. Microsoft's smartphones have gotten positive reviews, but they have been unable to gain market share thus far, partially due to the lack of applications available. Its current strategy should help the company become a bigger competitor in this market.
Microsoft has enjoyed a good business relationship with Nokia (NOK) in the past, but this may not last much longer as a result of Windows Phone 8. Many of the features on Windows Phone 8 will not run on Nokia Lumia phones, so Nokia customers will be unable to upgrade. There is some speculation that Microsoft wishes to buy out Nokia, which would explain why Microsoft would do something that hurts Nokia so much. It is easier to buy a cheap, struggling company than an expensive, successful one. This is bad news for Nokia, but it should not have much effect on Microsoft for the moment. Investors should watch for a potential buyout though.
The ability for Microsoft to succeed in the smartphone and tablet markets will have a huge impact on the company's stock price. If these products are released in the near future and they immediately compete with the top-of-the-line products produced by companies like Apple, Microsoft will see a huge gain in stock price, greatly benefiting investors. It also has potential to become a major force related to business technology as a result of its current strategy.
There is no guarantee that Microsoft will produce products that can stand up against the market leaders though. Even if it cannot though, Microsoft can still rely on its Windows 8 software to help it remain strong. If things go badly, Microsoft will still be a powerful player in the market. Furthermore, its previous success makes me believe there is a good chance it will be successful again with its upcoming products. As a result, I recommend Microsoft stock as a steady, long-term investment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.