Notwithstanding all the naysayers who keep proclaiming that the world has entered a post PC era, Microsoft still totally dominates the operating system market in PCS, laptops and notebooks, with a seemingly unshakable 90% of the market. However, let us remember that Microsoft has become a steady giant and the outlook is most likely to be almost ho hum going forward, as the stock has already appreciated by some 20% since the start of 2012, a tremendous performance considering the size of the company.
As the leading software maker, Microsoft has managed to smartly recover from its 52 week low of $23, due to fiscal third quarter 2012 results that beat the Wall Street analysts’ consensus estimate of 58 cents earning per share by delivering 61 cents EPS, with net income of $5.11 Billion and revenues at $17.41 Billion, up from $16.43 Billion in the third quarter last year, despite the fact that EPS was actually down slightly from 61 cents last year.
This is strong performance, as Rick Sherlund of Nomura Securities observed that this is before the next product cycle, which is not due until October, when the Windows 8 system is widely expected to be released.
In a quarter faced with a shortage of Thailand hard drives and the continuing onslaught of the incredibly popular iPad, PC sales recorded a respectable 1.9% increase, helping Microsoft book a 4% increase in its flagship Windows, as opposed to a widely expected 4% decline.
Nevertheless, there was some worry as the normally profitable Entertainment and Devices division posted a loss, with the aging Xbox console dragging down results amid increased spending in new software for the Windows smartphone.
Whats The Future? How High It Can Go?
Looking ahead, Forbes magazine expects Windows 8 to outperform Windows 7, which has a fantastic 550 Million licenses sold to date. The launch of the central repository of Windows software known as Windows App Store is also a positive development and could turn into a Billion dollar business in itself. It has been suggested that Windows will also make significant inroads into the fast growing tablet market.
With a cash position of $58.2 Billion and debt standing at $13.2 Billion, Microsoft is well positioned to go on an acquisition binge to strengthen its technological lead, just as CEO Steve Ballmer happily declared at the company’s last appearance at the Consumer Electronics Show that the Metro style design of the company’s phones, PCs, tablets and TVs had received excellent reviews. Early reviews of Windows 8 reveal that this Metro style is the main interface of the new operating system.
However, the future growth engine coming out of Microsoft may well lie in Kinect, a new technology that responds to body gestures that is widely credited for Microsoft’s 20% stock advance this year.
Although this breakthrough technology was already offered as an add on to the Xbox video console, it represents a revolution in the way people interact with their TVs, computers, or smartphones.
Microsoft initially did not grasp the importance and full potential of Kinect, but after developers piled onto the technology, the company has turned around, recently acquiring 11 startups to further develop this game changer at its Kinect development offices based in Seattle.
A version of Kinect for Windows has already been released and Microsoft is said to work with 300 companies to develop more Kinect uses for Windows, including such major companies as Boeing, American Express, and Toyota.
Overall, the Microsoft stock forecast still remains on the positive side, as Microsoft is still the cheapest among big tech stocks, at 10.7 times expected earnings for the next twelve months, some 14% below its tech peers. The next reporting date of July 19, 2012 will most likely give investors a better picture into the Microsoft stock outlook.