On Tuesday Chris posted about “Digital Media Convergence”, and picked Microsoft as one of the main benefactors/facilitators of just such a shift. A reader responded to the post with some excellent comments, and a due amount of concern, as to why one should be wary of investing in Microsoft.
I would first like to say, that this is just such an environment which we hope to foster here at InvestorGeeks. It’s one of the reasons we started the Forums. So in that spirit here is why I think that Microsoft is ripe for investment.
Chris has already mentioned this, but Microsoft has a large stash of cash. This in and of itself can be good or bad. It’s worth noting two things about this thought, one historical and one practical. The practical being that Microsoft has much of this money invested, which means they’ll see a return, and it’s not sitting idle. The historical being, that concern over this large pile of money arose right around the time of their anti-trust trial. Since then the company hasn’t been as free to spend as it perhaps may like, but they did what they could and stopped growing the reserve, and started paying dividends.
The relatively flat stock price has been due, in large part, to a dearth of new products. Office hasn’t been updated in two years, SQL Server hadn’t been updated since 2000, the .Net platform’s last update was a point release in 2003, and most telling Windows XP has been on the market for 4 years. This means that a large portion of the computers in use today, have been sold with a license to their current operating system, which means no additional revenue from up-graders. It’s probably also a safe bet that those who haven’t upgraded yet, will not until the next product cycle. Adding to the problem is that almost all of the products mentioned above have successors that have been delayed in some cases by years, while others had features dropped. Windows Vista suffered from both problems, more about which can be readhere
Pretty dark news? Yes, but in this light being able to maintain a stock price of between $25 and $30 a share seems pretty good to me. And those delays are over and those successors mentioned, are all due for release within the next year and a half. Here is what their product names are: SQL Server 2005, .Net 2.0, Office 12, and Windows Vista. In all these products, along with the XBox 360, account for nearly 65% of Microsoft’s sales. And just in case you need any more incentive 15 analysts rate Microsoft at a buy, and 16 at outperform.