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The Microsoft Corporation (MSFT) Story in 10 Charts

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The bulk of Microsoft Corporation (NASDAQ:MSFT) profits come from three cash cows:

Windows: Develops and markets PC operating systems as well as related software and hardware products.

Server and Tools: Offerings include Windows Server, Enterprise Services, Microsoft SQL Server, System Center products, Windows Azure, and Visual Studio.

Business: Develops and markets business applications including Office, Exchange, Lync, and SharePoint.

These segments are comparable to the cigarette industry. All three are mature businesses, difficult to break into, have fat margins, and require little reinvestment. Unfortunately, these segments can’t be expanded with additional capital so companies in this position have two options:

Become a cash machine: Return cash to shareholders through dividends and buybacks.

Reinvest in new ventures: Fund research to development new products or make acquisitions.

Microsoft Corporation (NASDAQ:MSFT) has chosen to do a little of both.

Becoming a cash machine

Last year, Microsoft Corporation (NASDAQ:MSFT) generated $31.6 billion in cash flow from operations and is sitting on $68.3 billion in reserves. The company can’t find enough productive uses for its cash fast enough so it spins most of it off to shareholders in the form of dividends and buybacks.

In 2012, Microsoft Corporation (NASDAQ:MSFT) paid shareholders $6.4 billion in dividends and $3.1 billion in buybacks. The stock has one of the highest dividends in the technology space with its yield nearing 3.3%.

Reinvesting into new businesses

But Microsoft Corporation (NASDAQ:MSFT) hasn’t returned everything back to shareholders. As Fool blogger Andrés Cardenal recently pointed out, the company reinvests a high percentage of sales back into research and development. What kind of returns have investors received for that investment?

Windows 8

Last October, Microsoft released the latest version of its Windows operating system. Early numbers have been disappointing.

Six months into the roll-out, Windows 8 has only captured 2.7% of desktop market share. By comparison Vista, universally acknowledged as a failure, had captured 4.5% of market share by a same point in its launch.

Commentators have provided several reasons for a slow launch including an ugly user interface, lack of innovative features, and poor support from the developer community. Increasingly, consumers are choosing to delay replacing their PCs in favor of tablets and smartphones.

Mobile

On the mobile front results have been also disappointing. Microsoft lost its lead in the space six years ago to Research In Motion Ltd (NASDAQ:BBRY) BlackBerry. Since then, the company has been losing ground to Google Inc (NASDAQ:GOOG)‘s Android and Apple Inc. (NASDAQ:AAPL)‘s iOS which own a combined 90% of U.S. mobile subscribers.

However, it’s not all bad news. Based on recent data from Kantar Worldpanel, Windows has taken third place in mobile based on February sales. The platform made noticeable gains in international markets as well.

Of course, this chart is hardly conclusive. During this study, Research In Motion Ltd (NASDAQ:BBRY) BlackBerry had yet to launch its Z10 handset. We’ll need to wait for more data to conclusively say Windows has secured third place in the smartphone wars.

Tablets

It’s also evident that Microsoft has missed the boom in tablet devices. The company’s Surface has had difficulty picking up market share.


Search

According to a COMSCORE, Inc. (NASDAQ:SCOR) report released last month, Google Inc (NASDAQ:GOOG) holds 67% of the search market. Microsoft’s Bing search engine trails a distant second with just 16.7%. During the last quarter Microsoft’s online division, which includes Bing, lost $289 million.

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