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- Popular culture success for the Xbox has not translated into real bottom line growth for Microsoft.
- The Microsoft Xbox One has lost important ground to Sony's PlayStation 4.
- An Xbox spin-off would grant the standalone video game company more freedom and could ignite growth.
- Meanwhile, Microsoft could focus its efforts upon defending its core software businesses.
Microsoft's Xbox Segment Is Starting To Gain Significant Momentum
- Microsoft is set to release a VR headset for its console at E3 2015.
- Microsoft’s gaming segment has regained some momentum as a result of aggressive pricing.
- The segment contributes a meaningful amount to Microsoft’ total revenue.
- China may be a significant growth catalyst as bans on consoles were lifted earlier in the year.
Dividend Stock Analysis: Windows Is Still A Central Part Of Microsoft's Business
- Microsoft, the world's largest software company, develops PC software, including the Windows operating system and the Office application suite.
- Due to the increased ownership of smartphones and tablets, only 14% of the devices worldwide use the once-dominant Windows operating system.
- Microsoft has pursued a strategy of focusing on a single operating system deployed across a variety of hardware platforms.
- Satya Nadella’s mobile-first, cloud-first strategy for Microsoft is not just vaporware.
- It is a real long-term growth plan that investors and industry observers appreciate.
- App Annie, the world’s foremost tracker of mobile apps, is now indexing Windows 8 apps.
- Windows phones and tablet sales are increasingly becoming too significant to be ignored.
- Unlike other messaging and VOIP software, Skype and Lync are proven moneymakers.
- Recently, I published a Seeking Alpha article detailing the growth potential of Microsoft’s Windows Phone segment.
- Since then, additional catalysts have surfaced.
- Microsoft has enabled carrier billing, the first global smartphone platform to do so.
- The tech giant also made a small-scale acquisition of Acompli, a provider of innovative mobile email apps.
- These further developments act as additional tailwinds for the Windows Phone franchise.
- Microsoft has enough cash to borrow tens of billions and buyback a large percentage of its float.
- The dividend yield is higher than MSFT's after-tax cost of debt, meaning the financing takes care of itself.
- I think MSFT is worth about $51 right now and more if it announces a debt financed buyback.
Microsoft's Smartphone Business Will Continue To Grow
- Recently, I covered Microsoft's acquisition of Nokia's handset business, citing that although it may seem like a bad move on the surface, it may bear fruit in the long term.
- Quarterly data shows little improvement with respect to phone hardware revenues and gross margins.
- On the bright side, units sold increased quarter-over-quarter, reflecting increasing demand.
- Microsoft is set to launch the low-cost Nokia 435, which seems to be a good play in developing countries.
The Future Of Microsoft: Windows 10 Goes Both Ways
- Windows 10 sets the stage for Microsoft to become a platform for not only preexisting devices, but embedded computing.
- Monetization of Windows 10 is shrouded in uncertainty, but expect Microsoft to reveal more details in early 2015.
- The unified software ecosystem is disruptive and puts Microsoft in a better position to integrate Windows into the Internet of Things, which is set to take off over the next decade.
- Analysts believe more share buybacks can help drive Microsoft's stock price higher in the next year or so.
- With Microsoft's strong cash flow and credit rating, it could issue $33 billion in debt to help buy back shares.
- With $4.9 billion remaining on the company's buyback program, overall repurchases can lead to a minimum 16% upside by 2016.
- Windows 10 will drive PC refresh going into 2015.
- Skype's language features will give Microsoft a larger share of all international calling.
- Power BI gives Microsoft the ability up-sell preexisting Office 365 users into big data analytics (a rapidly growing market).
- FY 2015 will be a major year for Microsoft, as various product developments will drive meaningful earnings growth.
Microsoft's Black Friday Win With Xbox One A Piece Of Welcome News
- Microsoft's Xbox One video games had been trailing Sony's Playstation 4 for months.
- Xbox One's download-centric delivery system could boost the Devices and Consumer, Other segment in future earnings.
- Game hardware is traditionally a loss leader, and the big payoff could be a couple years down the road.
- Having initially forecasted a five-year price target of $53 for Microsoft, the current price of $49 signifies investors are anticipating greater growth than previously anticipated.
- While Microsoft's P/E ratio has increased significantly to 19.4x, dividend growth has remained as expected and quarterly earnings per share most recently missed estimates at $2.63.
- Investors should expect significant EPS growth in 2015 to support the current price.
Now At $50, Where Will Microsoft Shares Go From Here?
- Microsoft shares reached the $50 level this week for the first time in nearly 15 years.
- The stock now trades at more than 16 times its fiscal 2016 earnings projections, despite an estimated earnings growth rate of only 6.5%.
- Microsoft continues to generate staggering levels of free cash flow and has an impressive cash position, allowing the firm to continue raising its dividend.
- However, Microsoft shares now appear overvalued by 15%, given the firm's modest growth potential and a forward earnings multiple that is now in line with the broader market.
How Much Will Shareholders Benefit From Microsoft's Culture Change?
- Satya Nadella has successfully transitioned Microsoft to cloud.
- Open source support and cloud rental should compensate for proprietary software losses.
- This is now the best buy for the conservative technology investor.
Microsoft: Doing The Right Thing By Copying Apple
- Just as the Surface tablet was an answer to iPad, Microsoft Band is a response to the Apple Watch.
- Pathetic as it might seem, copying Apple is a strategy that can work for Microsoft.
- Space exists for MSFT in a well-balanced dividend portfolio.
Tue, Apr. 15, 7:03 PM
- Microsoft's (MSFT) new Azure Intelligent Systems Service allows companies to capture and manage machine data from various embedded devices and sensors, regardless of the OS they use. The service aims to enable Web-connected embedded platforms in verticals such as retail, health, manufacturing, and transportation.
- IT outsourcing firms Cognizant and Infosys are among Microsoft's service partners. Intel and ARM are already going after this market by via solutions that combine their CPU designs with related software.
- Microsoft is also unveiling its Analytics Platform System, a hardware appliance (to be sold by OEMs) that allows data handled by SQL Server's data warehousing solution (used to process/analyze structured data) and the Hadoop big data framework (used for giant unstructured datasets) to be integrated and jointly queried.
- Satya Nadella calls the solution "big data in a box." Teradata (TDC) and Informatica (INFA) are among the companies in Microsoft's crosshairs.
- SQL Server 2014 has also been launched. As promised, the latest update to Microsoft's database platform (produces $5B+/year in sales) features in-memory capabilities that arguably make it a meaningful rival to SAP's popular Hana in-memory database.
- While going over the products, Nadella declares Microsoft needs to create a "data culture" to thrive, in part by using its own products. "Think of Office as the canvas, or the surface area, or the scaffolding from which you can access the data."
Wed, Apr. 9, 4:52 PM
- IDC estimates global PC shipments fell 4.4% Y/Y (less than a 5.3% forecast) in Q1 to 73.4M, after having declined 5.6% in Q4 and 7.6% in Q3. Gartner thinks shipments only fell 1.7%, and totaled 76.6M.
- IDC chalks up the narrower decline to healthy commercial demand, as buyers purchased Windows 7 systems ahead of Microsoft's (MSFT) termination of Windows XP support. The firm also thinks slowing tablet growth helped out.
- IDC thinks Japanese shipments rose 7%, and U.S. shipments only fell 0.6% thanks to 3.5% desktop growth. Emerging Asia-Pac and Latin American markets, where tablet cannibalization is at an earlier stage, remained weak..
- A mix shift towards developed markets benefits both Microsoft (higher ASPs, less piracy) and Intel (INTC - higher ASPs).
- IDC estimates market leader Lenovo (LNVGY) had a 17.7% share, +220 bps Y/Y. #2 H-P's (HPQ) share rose 150 bps to 17.1%, and #3 Dell's 170 bps to 13.4%. #4 Acer's (ASIYF) share fell 130 bps to 6.8%, and #5 Asus' 20 bps to 5.9%.
- The Q1 numbers suggest IDC's prior full-year forecast for a 6% shipment drop might prove too pessimistic.
- Other companies with strong PC exposure: AMD, NVDA, MU, STX, WDC, HTCH
Wed, Apr. 9, 4:18 AM
- Profits that major U.S. corporations have parked overseas in order to avoid taxes at home jumped 93% to $2.1T in 2008-2013, research firm Audit Analytics has calculated.
- GE (GE) held the most amount of money abroad with $110B and Microsoft (MSFT) was second with $76.4B, after which comes Pfizer (PFE) with $69B, Merck (MRK) with $57.1B and Apple (AAPL) with $54.4B.
- The numbers have prompted fresh calls for an overhaul of the tax code, including from Senate Finance Committee Chairman Ron Wyden.
Tue, Apr. 8, 9:18 AM
- The Chinese government's approval of Microsoft's (MSFT) acquisition of Nokia's (NOK) phone unit follows approvals from U.S. and EU regulators.
- Investors appear pleased regulators didn't set tough patent-licensing conditions on Nokia. Like the EU, Chinese OEMs had expressed concerns Nokia will now get more aggressive with its licensing efforts, given it will no longer have a phone unit needing cross-licenses. Nokia says it has promised to honor FRAND licensing principles (widely supported in the industry).
- Microsoft and Nokia have said they expect the deal to close this month, after originally setting a March timetable. Tax disputes with Indian authorities remain outstanding.
Mon, Apr. 7, 1:55 PM
- Seth Green and Sarah Silverman have been enlisted to star in original comedy shows being produced by Microsoft's (MSFT +0.2%) Xbox studios unit. The software giant is also backing a street soccer reality show called Every Street United, a robot thriller called Humans, and two other series.
- The effort, which comes as Netflix, Amazon, console rival Sony, and now Yahoo make big original content investments of their own, is being headed by ex-CBS Network chief Nancy Tellem, whom Microsoft hired in 2012. Tellem states Microsoft's content is aimed at the Xbox's core gamer demographic (typically males aged 18-34), and will feature interactive elements - the Kinect could help out with the latter.
- She adds Microsoft is still working on the business model for many of its programs, and might distribute some of them outside of the Xbox via partners. "This is not an easy business ... You have to get up to the plate a lot ... We’re focused on what we feel our audience on our platform wants."
- Microsoft named a new chief for its broader Xbox unit last week.
Thu, Apr. 3, 7:02 PM
- On day 2 of its Build conference, Microsoft (MSFT -0.8%) has unveiled a slew of new features for Azure. Among them: The ability to create/manage Azure virtual machines using Microsoft's Visual Studio developer tools; the ability to create/run mobile apps that leverage Active Directory; and the ability to support giant databases for big data projects.
- Microsoft claims Azure is now used by over 57% of the Fortune 500 - many are undoubtedly doing so for departmental, rather than company-wide, projects - and runs 250K+ websites.
- The company is counting on Azure's hybrid cloud support, along with its ability to play well with various on-premise Microsoft software (as show by today's new features) to help wrest share from 800-lb. gorilla Amazon (AMZN). Amazon, for its part, pitches enterprises on its still-unmatched public cloud feature set and support for 10 regions.
- After giving it a spin, ZDNet's Matthew Miller declares Cortana "blows away" Google Now and Siri. He's particularly impressed with its ability to pick up on a user's interests/preferences, and to be useful in the absence of voice commands.
- Cortana represents one more rival for Nuance (NUAN -3%), which helps power Siri and offers multiple proprietary voice assistant solutions. Wedbush stated today it believes Nuance powers the voice search for Amazon's new Fire TV set-top.
- Office iPad app downloads have topped 12M in a week. App Annie's U.S. iPad download chart shows Word, Excel, and PowerPoint holding the top 3 slots; OneNote is #8.
- Yesterday's Build announcements: I, II
Wed, Apr. 2, 2:38 PM
- Windows 7 fans rejoice: Microsoft (MSFT -0.3%) has confirmed at its Build conference the Start menu is returning. The software giant hasn't provided an ETA, but all signs suggest the Start menu will be a part of Windows 9 (reportedly due in April 2015).
- Microsoft's revamped Start menu will feature Metro-style live tiles next to the traditional Start bar. The software giant is also previewing a Windows feature that allows Metro apps to appear as distinct windows in desktop mode.
- Going forward, Windows will be free for phones/tablets with sub-9" displays. The price change comes after Microsoft reportedly cut Windows license fees by 70% for sub-$250 devices, and represents an escalation of its efforts to put a dent into iOS/Android's 90%+ smartphone and tablet shares.
- Also: Nokia is unveiling the Lumia 630, 635, and 930, each of which is optimized for Windows Phone 8.1. The 930, a new flagship model, features a 5" 1080p display and 20MP camera, and goes for a steep $599 unsubsidized. The 630 (4.5", 3G radio) goes for $159-$169 unsubsidized, and the 635 (4.5", 4G radio) for $189.
- Earlier: Microsoft unveils Windows/WP updates, universal apps
Wed, Apr. 2, 1:49 PM
- As rumored, an update to Windows 8.1 (MSFT -0.5%), revealed at Microsoft's Build conference, provides a slew of UI changes aimed at keyboard/mouse users: Power and search buttons have been added to the Metro interface, right-clicking on Metro tiles brings up pop-up menus, and Metro apps can be added to the desktop-mode taskbar. But there's still no taskbar for Metro.
- Windows Phone 8.1, meanwhile, brings with it Cortana, a personal assistant service meant to be Microsoft's response to Google Now/Siri. The OS update also includes an improved notification center (addresses a common user complaint) and support for custom lockscreens.
- Hoping to narrow the big leads iOS and Android have in touch app developer support, Microsoft is also announcing an update for its popular Visual Studio platform that allows developers to create (with some minor tweaking) "universal" apps that can run on PCs, phones, tablets, and the Xbox One. Users will be able to download an app for one device through the Windows Store, and immediately have it be available for others.
- A week after launching Office iPad apps, Microsoft is previewing its anticipated touch-friendly Windows Office apps. "We’ve still got some work to do before we ship these," says VP Kurt Koenigsbauer. (live blog)
Tue, Apr. 1, 2:47 PM
- The newly-rechristened Microsoft Azure (MSFT +1%) is seeing a fresh round of major price cuts: They include 27%-35% drops for Azure's cloud computing services, 44%-65% drops for its cloud storage services, and 27%-35% drops for memory-intensive Windows and Linux computing instances.
- The cuts come a week after Google announced huge across-the-board cuts for its Compute Engine cloud infrastructure (IaaS) platform and App Engine cloud app platform (PaaS), and Amazon quickly returned fire.
- Google's move was accompanied by the launch of a service that aims to mesh the software flexibility of Compute Engine with the management ease of App Engine, and by a new pricing scheme that delivers automatic price cuts for buyers of reserved capacity.
- Microsoft, for its part, is adding new redundancy and regional service options for Azure (could appeal to clients with global footprints). Like Google and all other rivals, Microsoft's IaaS share is well below Amazon's, but it's one of the PaaS market's four leaders.
- Separately, Mary Jo Foley reports a pending update to Windows 8.1 adds a taskbar and "other visual cues" meant to appease keyboard/mouse users unhappy with its UI changes. Microsoft has already added a boot-to-desktop option and brought back the Start button. Those wanting the Start menu back will likely have to wait for Windows 9 (expected in 2015).
- Microsoft's BUILD developer conference starts tomorrow.
Mon, Mar. 31, 12:25 PM
- Phil Spencer, until now the head of Microsoft's (MSFT +2.4%) game studios, is now in charge of the entire Xbox unit (hardware, games, Xbox Live). He takes command of a business that has seen several high-profile departures over the last year (inc. division chief Don Mattrick and product chief Marc Whitten).
- Interestingly, Spencer will report to OS chief Terry Myerson rather than Stephen Elop, who will be in charge of Microsoft's other hardware ops once the Nokia deal closes (taking over from Julie-Larson Green). His gaming background is particularly noteworthy in light of how the PS4's strong gaming focus (along with its lower price) is seen as contributing to its sales lead over the Xbox One.
- Also: Microsoft has made former Azure development chief Scott Guthrie the permanent head of its enterprise/cloud ops (includes products previously within the Server & Tools unit), and promoted him to the status of EVP. Guthrie has been enterprise/cloud's acting chief since Satya Nadella was named CEO.
- Shares are making fresh post-Dot.com bubble highs amid a tech rally.
Fri, Mar. 28, 1:03 PM
- "It was encouraging to have the CEO of Microsoft (MSFT +2.8%) visible in a product strategy discussion, laying out in a transparent way the strategic direction of the company that embraces where users are going ... and breaking away from the Windows and PC-centric focus of the past," writes Nomura's Rick Sherlund, praising yesterday's product announcements.
- Apple uber-fan MG Siegler also likes what he sees. "Microsoft could have released Office [for the iPad] much much much much much sooner. They chose not to. Steve Ballmer chose not to ... I believe Satya Nadella has already put Microsoft in a better place than it has been in years."
- The apps, free in read-only mode, have quickly moved to the top of iPad download charts. Though criticizing a few feature omissions (such as printing support, due in an update), reviewers (I, II, III) have praised the apps' editing tools, touch optimizations, and cloud integration.
- Also of note: 1) Microsoft has made the full versions of its iOS/Android Office smartphone apps completely free for home use, and is promising Android tablet apps are on the way. 2) Though doing so requires giving Apple a 30% cut, Microsoft is allowing free iPad users to upgrade to Office 365 from their devices. Few enterprises are likely to subscribe using an iPad, but some consumers/SMBs might.
- Yesterday: Office iPad apps launched, mobility suite detailed
Thu, Mar. 27, 2:58 PM
- Microsoft's (MSFT -0.8%) Enterprise Mobility Suite (EMS), due May 1, will combine mobile device/app management, identity/access control (single sign-on is promised for hundreds of cloud apps), and data protection services.
- Like rival offerings, EMS will manage devices/apps on multiple platforms (Android, iOS, Windows Phone). It makes heavy use of existing Microsoft management tools, such as Intune and System Center's configuration manager, as well as the new Azure Active Directory Premium identity management service.
- Satya Nadella once more talks up Microsoft's willingness to support rival platforms/apps. The company is fresh off changing Windows Azure's name to Microsoft Azure, a move many consider fraught with symbolism.
- EMS will join a hotly competitive mobile device/app management market that features VMware's (VMW +0.7%) AirWatch unit, Citrix's (CTXS -0.3%) Zenprise unit, and BlackBerry's (BBRY -2.7%) BES 10, as well as offerings from private Good Technology and MobileIron.
- Microsoft is counting on its security/access tools, as well as EMS' ability to complement System Center's data center/cloud management tools (will Microsoft try to bundle/discount?), to help give it an edge.
- Earlier: Microsoft launches Office iPad apps
Thu, Mar. 27, 1:39 PM
- As expected, Microsoft (MSFT -0.8%) has unveiled its Office iPad apps at a San Francisco event. Read-only versions are free, but full versions will require an Office 365 subscription. They'll be available in the App Store at 2PM ET.
- The iPad's screen real estate has allowed the apps to sport UIs similar to those of PC Office apps. At the same time, Microsoft promises it has put a lot of effort into optimizing for touch - for example, images can be easily resized and wrapped around Word text with one's fingers.
- Satya Nadella put some effort into reassuring his Bay Area audience Microsoft now has mobile/cloud religion. He also declares his company is pursuing a vision of "ubiquitous computing and ambient intelligence." Google can relate.
- The iPad apps are aimed at bolstering an Office cash cow that continues to see moderate growth in the face of weak PC sales and a shift to Office 365 subscription sales. Office 365 subscriptions that include PC apps run from $150-$264/year for business users, and $70-$100/year for home users.
- Shares rallied last week on reports of a pending Office iPad launch.
- Event live blog, an early review
Thu, Mar. 27, 3:06 AM
- New Microsoft (MSFT) CEO Satya Nadella is expected to unveil Office for the iPad today in a move that would end the company's policy of only providing Office for tablets that run Windows.
- Analysts estimate that Microsoft could earn at least $1B a year from an iPad Office edition, although versions for the iPhone and Android handsets haven't enjoyed great success.
- Microsoft will also reportedly introduce Enterprise Mobility Suite (EMS), a product for big organizations that need to centrally manage a variety of devices. EMS is designed to facilitate bring your own device (BYOD) scenarios.
Mon, Mar. 24, 7:12 AM
- Nokia's (NOK) sale of its handset business to Microsoft (MSFT) will be completed in April rather than at the end of this month, as initially expected.
- The postponement is due to the deal not yet receiving authorization from a number of regulators, including in China.
- The transaction has already received approval in the U.S. and Europe.
- Meanwhile, Nokia is facing another tax claim in India, this time from the southern state of Tamil Nadu, which says it is owed €300M ($417M) on unpaid taxes on sales of phones made at the company's factory in Chennai. India's government says Nokia owes €250M in a separate tax dispute.
Fri, Mar. 21, 8:03 AM
- In its effort to track down the source of a leak about Win8 OS last year, Microsoft (MSFT) admits that it read the Hotmail inbox of a blogger who it suspected had received stolen lines of code from the as-yet-unreleased product.
- The firm's action became known this week as part of a legal case between US prosecutors and Alex Kibalko, a former Lebanon-based Microsoft employee.
- The company's actions, while legal, are a bit embarrassing considering its criticism of Google's practice of scanning users' emails for targeted advertising.
MSFT vs. ETF Alternatives
Microsoft Corp is engaged in designing, manufacturing, selling devices, and online advertising to a global customer audience. Its products include operating systems for computing devices, servers, phones, and other intelligent devices.
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