MSFT - Microsoft

[Viking]

Microsoft looks cheap at current levels. Stocks is trading at about $27.00  Company has about $6.00/share in cash and should earn about $2.85 in the current fiscal year (to June). Dividend will get increased once again this year with yield likely approaching 4%. Company looks to be firing on all cylinders and while it is impossible to predict the future it is likely MSFT will continue to do well. I expect they will do better on the innovation front than the market currently expects.

 

I am happy to buy MSFT at current levels and hold in place of a bond (I prefer the risk/reward profile).

[hyten1]

viking i agree with you on msft

 

i also think there is embedded call option on windows 8/pc/pc tablet not doing as bad as people think or put another way pc tablet being more widely adopted in the future. if there is any hint of happening i think the stock can pop

[txlaw]

Don't forget Bing.  Partnership with Facebook means they're going to continue to fight to have a profitable second place business in search.

[Palantir]

It would be nice if MSFT had a better buyback program.

[Viking]

Palantir, I like MSFT's return of capital over the past few years (via dividend and share repurchases). I noticed MSFT has not been as aggressive on the buyback front the past year; perhaps this was due to the Skype purchase and the desire to re-build cash. Hopefully with cash at very high levels they will once again get more aggressive on share repurchases. At the end of the month, earnings releases for MSFT (and Apple) will certainly be interesting to follow...

[Palantir]

Microsoft's Office 2013 Is Software for the Cloud

 

http://www.businessweek.com/articles/2013-01-29/microsofts-old-software-comes-with-a-new-image#r=rss

 

A couple of interesting insights into Microsoft's transformation.

 

 

Also on this note, in MS's 10Q, note how Bing has steadily increased revenue and reduced losses.

[sswan11]

http://www.huffingtonpost.com/2013/01/22/joachim-kempin-book-microsoft_n_2523482.html

 

Joachim Kempin on Ballmer.

[racemize]

Ars on Surface Pro:

 

http://arstechnica.com/gadgets/2013/02/microsoft-surface-with-windows-8-pro-hotter-thicker-faster-louder/

 

TLDR:

 

The Good

The screen is pretty

Touch Covers and Type Covers are still good typing solutions

The build quality remains first-rate

Runs Windows apps with aplomb

 

The Bad

Runs hot

Runs loud

Runs short

The whole resolution scaling situation is unsatisfactory

Metro-style apps still lacking in breadth, number, and quality

 

The Ugly

The design fundamentally doesn't work

[Guest wellmont]

the entire surface product line has been flawed from the start. you wonder why they even release products like this?

[Palantir]

I don't see why it is so flawed. The Surface Pro seems like a great device. The mistake is in thinking that it is an iPad rival, when really it is a totally different product, and more comparable to a laptop.

[Hoodlum]

The Surface Pro will be much preferable to the corporate environment.

[dcollon]

Article in the NYT this morning.

Microsoft’s_Surface_Pro_Works_Like_a_Tablet_and_a_PC_-_NYTimes.pdf

[Guest hellsten]

http://www.quora.com/Microsoft/Why-isnt-Microsoft-cool

 

What happens when Apple products are no longer cool? I guess we have part of the answer already; the media starts writing negative articles about the company and how there's no innovation.

[Guest wellmont]

http://www.quora.com/Microsoft/Why-isnt-Microsoft-cool

 

What happens when Apple products are no longer cool? I guess we have part of the answer already; the media starts writing negative articles about the company and how there's no innovation.

 

they are rapidly losing their cool. mostly because smartphones and tablets are becoming hohum technologies that no longer excite. they are becoming mature technologies. yesterday HTC released a fantastic phone. But I noticed the mobile analysts no longer get excited at new phones and tablets. they talked about smartphone "fatigue". apple needs new product categories fast.

[Guest wellmont]

paul thurott is the biggest msft fan boy out there. and even he is luke warm on the surface pro. he thinks the surface rt is pretty much useless. this is a beta product that msft has released to their customers as finished product.

[Palantir]

If you haircut MSFT's net cash position by 35%, yielding 45B, we get an EV of 185B. Ends up trading at an EV/FCFE ratio of 185/26 = 7. Even if you cut FCFE by 35% (death of MSFT), we get 185/16.9= 10.9. Which is still cheap.

 

 

I think MSFT has a margin of safety. People talk about small caps being unloved, misunderstood, and undervalued. I'd say Mr Softy is all of those. In my opinion, if you think of it as a deep value play, you can still make some money, with additional upside if there are catalysts like improving search results, a more powerful S&T business etc.

[boilermaker75]

If you haircut MSFT's net cash position by 35%, yielding 45B, we get an EV of 185B. Ends up trading at an EV/FCFE ratio of 185/26 = 7. Even if you cut FCFE by 35% (death of MSFT), we get 185/16.9= 10.9. Which is still cheap.

 

 

I think MSFT has a margin of safety. People talk about small caps being unloved, misunderstood, and undervalued. I'd say Mr Softy is all of those. In my opinion, if you think of it as a deep value play, you can still make some money, with additional upside if there are catalysts like improving search results, a more powerful S&T business etc.

 

The EV/FCF has attracted my attention also. I don't know what the catalyst will be. Every time MSFT trades down to the $27 level I write put options. I don't mind owning MSFT at $(27-put option premium), and if I don't get put to I still get a very good return. I wrote some April 27-strike puts this morning for $0.63 per share. That translates into an annual return of 16%, which I am happy with while waiting to be put to.

[Palantir]

A nugget from the piece on MSFT a few months ago. Bill Gates' product genius, while Steve Ballmer gets blamed for missing out on tablets and smartphones!

 

He had good reason to fret. Signs that Microsoft would be missing the boat in the next decade were already emerging. That very moment at Microsoft’s headquarters, in Redmond, Washington, a group of executives were developing a device that, in 10 years’ time, would transform a multi-billion-dollar industry: an electronic reader that allowed customers to download digital versions of any written material—books, magazines, newspapers, whatever. But, despite its multi-year head start, Microsoft would not be the one to introduce the game-changing innovation to the market. Instead, the big profits would eventually go to Amazon and Apple.

 

The spark of inspiration for the device had come from a 1979 work of science fiction, The Hitchhiker’s Guide to the Galaxy, by Douglas Adams. The novel put forth the idea that a single book could hold all knowledge in the galaxy. An e-book, the Microsoft developers believed, would bring Adams’s vision to life. By 1998 a prototype of the revolutionary tool was ready to go. Thrilled with its success and anticipating accolades, the technology group sent the device to Bill Gates—who promptly gave it a thumbs-down. The e-book wasn’t right for Microsoft, he declared.

 

“He didn’t like the user interface, because it didn’t look like Windows,” one programmer involved in the project recalled. But Windows would have been completely wrong for an e-book, team members agreed. The point was to have a book, and a book alone, appear on the full screen. Real books didn’t have images from Microsoft Windows floating around; putting them into an electronic version would do nothing but undermine the consumer experience.

[Ross812]

PC sales down huge again.

 

http://www.reuters.com/article/2013/04/10/pc-data-idUSL2N0CX2DX20130410

 

Personal computer sales plunged 14 percent in the first three months of the year, the biggest decline in two decades of keeping records, as tablets continue to gain in popularity and buyers appear to be avoiding Microsoft Corp's new Windows 8 system, according to a leading tech tracking firm.

 

 

The huge drop over a year ago, the steepest since International Data Corp started publishing sales numbers in 1994, mark a new milestone in the apparent decline of the age of the PC as computing goes mobile via tablets and smartphones.

 

Total worldwide PC sales fell 14 percent to 76.3 million units in the first quarter, IDC said on Wednesday, exceeding its forecast of a 7.7 percent drop. It was the fourth consecutive quarter of year-on-year declines.

[Guest valueInv]

Sold all my MSFT a few weeks ago. Too risky to hold.

[hyten1]

"..In its tally, IDC excludes tablets, even if they run PC-style software. It also excludes any device that has a detachable keyboard. With the release of Windows 8, PC makers have been reviving their experiments with tablet-laptop hybrids, some of which have detachable keyboards. Consumers are likely to have shifted some of their buying away from traditional laptops and toward these new devices, which means that the total sales decline of Windows-based devices may not be quite as drastic as IDC's numbers suggest."

[texual]

Too risky to hold Microsoft? Please, entertain me I am really looking for where I went wrong this past year.

[Guest valueInv]

Too risky to hold Microsoft? Please, entertain me I am really looking for where I went wrong this past year.

 

Without PC sales, Office crumbles and after that so does everything else.

[texual]

Does Office depend on new PC sales? I doubt that can be inferred. I also believe where the market goes, so does Microsoft. If in 5 years everyone on the planet is using an iPad, I believe Microsoft will be there to provide services and software that hook into that ecosystem. Office on the iPad would make money, but I do believe Windows is here to stay whether its on existing PCs (which, by the way last longer and are not as exposed to aging risks as older PC's, hence software upgrade cycles take advantage of existing PC's), or new ones like tablets. Windows will be okay, it works out such that the trajectory of Windows 8 is to achieve parity between all form factors. One software, many devices. I think Microsoft is the only company close to achieving that vision. If it takes two or three years, so be it. Nobody else will be able to catch up on that promise.

 

To me, falling PC sales only affects PC makers. I think the argument is a bad one, and not really substantially going to hurt a software enterprise like Microsoft.

 

On a unrelated MSFT note I believe the next Xbox will be the only console of the next generation to actually get the living room by a long stretch. I saw PS4, I saw WiiU but neither of them deliver on this: your Xbox is connected to your TV but also your set top cable box. Well that isn't confirmed but sources are pretty sure this is what will be shown in May. If they are able to get a software solution to managing your TV channels, dvr capability and managing gaming, streaming and other entertainment scenarios, Xbox just put a nail in the coffin for every company trying to 'take the living room.' I would be really worried about the impact Xbox will have long term, if they develop devices that interface directly with Xbox and your TV. They are already doing it with SmartGlass. Very cool, innovative stuff. Kinect integration will also be important to their plan.

[petec]

My experience certainly suggests that Office and PC sales need not be related.  I use Office on my phone, and on Skydrive, and would do on a tablet if I buy one (which I will) and on a Mac if I buy one (which I won't).  With the exception of the phone, those work best if I buy the software and download it onto the form factor...so guess what I'll keep doing?

 

If in 5 years everyone on the planet is using an iPad, I believe Microsoft will be there to provide services and software that hook into that ecosystem.

 

+1.  Actually +about 10.