Is Microsoft Corporation (NASDAQ:MSFT) finally positioned to provide a decent return to investors? Is the recent jump in price of over 20% justified, or is it just a temporary illusion created by traders?
Death of the PC
The minute the first iPads were placed in customers’ hands, people knew that Apple Inc. (NASDAQ:AAPL) was on to something big and the computer business would never be the same again. Apple Inc. (NASDAQ:AAPL) had eliminated many people’s need to be tied to a PC and it began to actually grow its market share of new PC sales. Microsoft Corporation (NASDAQ:MSFT) was poised to be left in the dust.
However, most of the personal computers sold continued to be Windows-based machines because Microsoft already had most customers on the hook. Most consumers and businesses already relied on Windows-based software to run their lives and businesses. It did not hurt that the cost of an iOS system was 50% to 100% higher than a comparable Windows-based system.
Even with lower PC sales, Microsoft Corporation (NASDAQ:MSFT) is a Windows-based cash flow and profits powerhouse. Plus, the company has a cash hoard of $70 billion. The ample 2.80% dividend yield is not in jeopardy of disappearing anytime soon.
Microsoft has finally re-entered the tablet computer business with the introduction of Windows 8 and the Surface. Sales are not booming, but any market share is better than no market share. Windows 8 also gives many traditional PC makers an entry into the tablet market through PC/tablet hybrids that offer more powerful processors and greater storage capabilities than other tablets.
Enter the Nook
Microsoft Corporation (NASDAQ:MSFT)’s current position in the Nook is just as an investor and a minority partner with Barnes & Noble, Inc. (NYSE:BKS). There was a rumor that Microsoft wanted to buy the Nook business outright for $1 billion. Now, the story is that Microsoft has no intention of buying the Nook.
Good. Why pay one billion dollars for just the Nook when the total market cap of Barnes & Noble, Inc. (NYSE:BKS) is only $1.25 billion? Just buy the whole company!
Sounds a bit silly? Well it isn’t. Barnes & Noble, Inc. (NYSE:BKS) has 639 stores that are destination shopping locations. With a very small amount of planning and some redesign, Microsoft could have 639 micro stores in malls across America. Connect these micro stores with a special display area attached to the children’s section which features the new Windows RT Nook and begin the indoctrination at an early age!
Yes, the Windows RT Nook does not exist, yet, but there must be enough programmers in Redmond to figure out a solution. Until then, a child-friendly Xbox display with some educational or exercise games would do the trick.
Speaking of Xbox, this is still a strong point for Microsoft Corporation (NASDAQ:MSFT). Xbox currently has a 44% market share which can only get better with the launch of the new Xbox. Xbox might not be Microsoft’s biggest profit generator but it serves as a great hook to taking control of the consumer’s home entertainment infrastructure.
Microsoft in last place
The only way to characterize Microsoft’s position in the mobile phone market is that they are in last place with nowhere to go, but up. While the new Windows phone has been critically well received, sales are minimal in the U.S. However, the phones are having slightly better success in emerging markets where they have a price advantage.