Microsoft Bears Underestimate the ‘Enterprise Moat’

Microsoft reported a solid fiscal second quarter on Thursday with revenue and earnings that were generally above consensus estimates. However, concerns over relatively tepid growth in the Windows segment overshadowed positive results elsewhere in the eyes of market participants leading to a nearly 4 percent drop in the stock price today. Read this article for our view of the results and competitive threats to Microsoft’s moat.

Investors Price In Failure of Windows Phone 7 Rollout

We have outlined the bullish case for Microsoft based on the depressed valuation of the shares, positive recent financial results, and expected strong results this fiscal year due to a corporate refresh cycle that will take advantage of Windows 7 and Office 2010 after a period in which upgrades were delayed due to both real and perceived shortcomings in the Windows Vista operating system. However, despite attractive fundamentals, the market is currently focused on smart phones and appears to be assuming that Microsoft’s new operating system will utterly fail to gain any meaningful share from Apple’s iPhone or Google’s Android operating system. Is this negative sentiment warranted or a potential opportunity for long term investors?

Microsoft Plans Debt Sale to Fund Dividends and Buybacks

Microsoft shares were sharply higher in late trading today after Bloomberg reported that the company is planning to sell debt this year to pay for dividends and share repurchases. Why would a company with nearly $37 billion in cash on the balance sheet need to issue debt in order to pay dividends or fund repurchases? The answer is that much of Microsoft’s cash hoard is held overseas and the company would have to pay taxes on earnings that are repatriated to the United States. Read this article for more details.

Technology CEOs View Dividends as Sign of Defeat

Few examples in stock market history more clearly illustrate the risks of buying into “hopes and dreams” than the technology bubble of the late 1990s and early 2000s. Companies with no earnings and nonsensical business plans eventually ceased to exist and are now long forgotten. However, most of the well known technology firms from 2000 continue to exist today and have tested business models that generate consistent profitability. However, investors are so disillusioned that valuations have plummeted. This raises the question: Are technology companies now “value stocks” that should pay large dividends? Read this article for more details.

Microsoft Promotes Cloud Capabilities in New CRM Release

Microsoft announced a global beta of Microsoft Dynamics CRM 2011 today and appears to be heavily promoting the cloud capabilities of the new version. In our recent article presenting the investment case for Microsoft, we pointed out that cloud computing is one of the major threats facing Microsoft and a mainstay of the bearish case against the company. Let’s take a quick look at today’s announcement.


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