Message Font: Serif | Sans-Serif
No. of Recommendations: 18
Looks like they had a pretty impressive quarter. Even after discounting the $1.47 bil in deferred revenue, they grew top and bottom lines impressively. While everyone is saying the PC is dead and that MSFT has nothing to offer other than Windows and Office, this earnings report suggests that the doom sayers are off the mark. Not only have those divisions delivered impressive results, I believe the business upgrade cycle is still ramping up. Our institution has put off both hardware and software upgrades during the economic crisis, but now it's no longer possible to extend the service life of our technology. While the IT folks have toyed with cloud computing, the fact is that there are hidden cost to abandoning the MSFT platform, the most expensive of which is a larger IT staff required to manage and maintain an open source platform. MSFT delivers a well integrated and clean solution to many companies technology needs, so I don't see these revenues evaporating any time soon. If anything, MSFT is best positioned to take a leadership position in cloud computing since so many companies already run on their platform. In any case, I think the threat cloud computing possesses to MSFT is that of one division cannibalizing another.

Revenues for the Entertainment and Devices Division (XBOX and Windows 7 Phone) were $1.8 bil, and while net margins are much lower in this division than the cash cows of Windows OS and Office, they are set to become much bigger revenue generators in the future. I think the fact that the Windows 7 phone wasn't DOA bodes well for this division in the coming years, not to mention the potential of Kinect for the XBOX. The potential of the XBOX itself, as the entertainment console of the home, hasn't been fully appreciated by people. It delivers a networked gaming experience as well as networked video entertainment. It is well situated to become the hub of every home entertainment system.

Despite delivering growth, critics will continue to rip MSFT as a dying dinosaur too sluggish to adapt to the nimble world of Google and Apple. They will look at the $7.5 bil in cash added to the balance sheet this quarter and pooh pooh it as yet more evidence of their incapacity, and the herd will follow these sonorous voices away from the obvious value proposition that is MSFT. I mean really, it is one thing to discount the 2.5% dividend yield and 9% earnings yield offered by a slow growing behemoth, but MSFT isn't such a creature. IT'S STILL GROWING, and it's the closest thing to a money tree one can find in the market today.

Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.