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Microsoft Corporation (MSFT)’s Diversification Is A Well Disguised Trial And Error

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For most investors, a company that diversifies is deemed to be tactful and aggressive. Not only does it open up favorable prospects for the company, but it also avails something to fall back on in case things go south. Nonetheless, diversification can also pass by as a well-disguised trial and error; more so if a company is already established in doing one thing. This is exactly what comes to mind when I look at Microsoft Corporation (NASDAQ:MSFT).

There was a time when the software giant was synonymous with its Windows Empire and at the time paid very little attention to other segments in the industry. This changed when the scales tilted in favor of Google Inc (NASDAQ:GOOG) and Apple. Microsoft can no longer peg its hopes on the buckling PC segment. Instead, it is dipping its toe in every segment it can. I am convinced that this is a disguised attempt at trial and error. Microsoft Corporation (NASDAQ:MSFT) wants to maintain its relevance at a time when even some of the biggest names, like Apple, are losing their luster.

Microsoft Corporation (NASDAQ:MSFT)The following snapshot offers deeper insight on the segments Microsoft is counting on.


In the recent second quarter earnings call, the tech titan’s multi-year licensing from its enterprise customers increased 17 percent. This heavily contributed to the $21.46 billion record revenue that was posted. Similarly, its Server and Tools division posted a 9 percent revenue increase, driven by the launch of Windows Server 2012 and MySQL server 2012.

Microsoft Corporation (NASDAQ:MSFT)’s prospects in enterprise will also be aided by Nokia Corporation (ADR) (NYSE:NOK). The Nokia Lumia has already started making notable inroads into the enterprise market, as noted with its win over Foxtons, a U.K real estate agency. I have particularly singled out Nokia as it too is fighting to eke its piece out of the enterprise market that is largely dominated by Blackberry. This presents a win-win situation for both Nokia and Microsoft.


With the future of cloud computing seeming rosier by the day, Microsoft Corporation (NASDAQ:MSFT) has not wasted any time in regard to this. It is banking on the surging demand for cloud products and hopes that it will trigger trajectory growth for some of its recognizable brands in the sector, including Yammer and Skype.


The Surface initiative was designed to not only gnaw into bigger competitors’ turfs but to also offset the decline of business in the PC sector. As pointed out earlier in one of my recent writings (here), demand for tablets is quickly gaining momentum. Going by the trend, shipments of tablets will soon- and by soon I mean somewhere this year- go ahead of PCs.

Here is a chart I pulled from my previous writing on tablets.

The chart clearly demonstrates my argument; tablets shipments will soon outstrip PC shipments. Don’t bother looking at smartphones, that ship sailed a long time ago.

Microsoft Corporation (NASDAQ:MSFT) CFO Peter Klein did not give the exact number of tablets that were shipped during the second quarter earnings call. Nonetheless, he argued that demand was encouraging. “Demand exceeded the limited assortment of touch devices available,” he said. This should however not stir any excitement. The tablet has only been available at select stores and at Microsoft’s own stores. Klein revealed that efforts to increase production will gain momentum in this quarter.


This is inarguably the sector that took Microsoft down. Before the shiny smartphone in your pocket was introduced into the market, Microsoft Corporation (NASDAQ:MSFT) was one of the key leaders in the tech industry, renowned for revolutionary products and impossible margins. The arrival of the iPhone, coupled with Apple’s innovative spirits, however crushed Microsoft.

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