Microsoft Corporation (NASDAQ:MSFT) is one of the most well-known companies in the world. The company has been shaping the technology world for more than 20 years, and it continues to be a cash cow. While Microsoft is a giant company that reached maturity a while back, there is still a lot of room for it to grow and provide further value for investors.
Company shows resilience
2012 was another successful year for Microsoft Corporation (NASDAQ:MSFT). The company generated $73.7 billion in revenue, $31.6 billion in cash flow from operations, and it was able to return $10.7 billion to shareholders in the shape of dividends and buybacks. Despite the weakness of the PC sector, which negatively influenced the results of companies like Dell Inc. (NASDAQ:DELL) and Hewlett-Packard Company (NYSE:HPQ), Microsoft continued to show a lot of resilience. Hewlett Packard recently reported a revenue decline for the seventh quarter in a row, whereas Dell Inc. (NASDAQ:DELL)’s profit was down by as much as 79% in the last quarter. Dell and Hewlett-Packard Company (NYSE:HPQ) will have to work hard to increase revenues. We may see the two companies coming up with new products such as tablets and mobile phones, as well as software and service solutions. I own shares of HP and I believe in the management of the company, but I realize that the company will have to do a lot of work before things turn around for it. At the moment, the main catalyst for Dell Inc. (NASDAQ:DELL) is a possible takeover. Currently, Hewlett-Packard Company (NYSE:HPQ) trades for a forward P/E of 6 and Dell trades for a forward P/E of 10. Of these two companies, HP has a better value.
Microsoft Corporation (NASDAQ:MSFT) continues to move from PCs to different mediums such as tablets, smartphones, and gaming systems. This type of diversification will help the company grow organically, and in a healthy manner in the future. In the last quarter, Microsoft was able to grow revenue and earnings by 8%, which is impressive, given that the global PC economy has been suffering. It is very important for Microsoft Corporation (NASDAQ:MSFT) to diversify its products and show resilience at a time when the PC industry faces huge uncertainties.
Change in business model
Microsoft Corporation (NASDAQ:MSFT) is changing a lot of things. For example, the company is moving toward licensing its software, rather than selling it and being done with it. In the old system, users would buy Microsoft’s products (for example Microsoft Office) at the store and use it forever. In the new system, the company will charge users indefinitely for every year they choose to renew their license. This will ensure that the company has recurring revenue for years to come.
Partnership with Nokia
Microsoft Corporation (NASDAQ:MSFT)’s partnership with Nokia Corporation (ADR) (NYSE:NOK) has been working nicely. Windows Phone continues to be the fastest-growing smartphone operating system, even though the low base rate is definitely playing a role in this. Windows Phone is expected to reach a double-digit market share by the end of 2014, which is a strong accomplishment in this extremely competitive environment. Apart from Nokia, the other Windows Phone producers didn’t make much progress. However, this could be because most phone producers’ main focus is on Android. Keep in mind that Nokia Corporation (ADR) (NYSE:NOK) sells four out of every five Windows Phone devices on the market, which means that the success of the Windows Phone project mostly depends on Nokia. Currently, Nokia trades for a price that is too close to its book value (around 1.1 times its book value), which makes the company very cheap. Investors currently treat Nokia Corporation (ADR) (NYSE:NOK) as if it’s already in the process of bankruptcy.