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Can Microsoft Make It Back to Being the Undisputed Champion?
Posted by: Muhammad Bazil (IP Logged)
Date: September 5, 2012 11:57AM
Before May, 2010, Microsoft (MSFT) was the undisputed champion in the technology world. For one it was the most valuable technology firm in the world. However, this has changed. Apple (AAPL) now occupies this position. The situation got even worse for Microsoft when Apple also clinched a higher quarterly profit for the very first time in two decades in its 2011 first quarter. But it does not end here because recently, on Aug. 20, 2012 to be precise, Apple set a new world record in market capitalization by beating that previously set by Microsoft in 1999. On this day Apple’s share price closed at $665.15 resulting in a $622.98 billion market capitalization. This was based on outstanding shares of 936,596,000 (as at June 30, 2012). However, in spite of this, Microsoft still remains a powerful supplier of its unique software that is meeting the elaborate needs of big corporations, even though it has not received the loving attention that its main rival, Apple, has received regarding its iPad and iPhone.
So what is Microsoft doing to take back its position of pride of place in the new scheme of things? Of course, as expected, Microsoft is not resting on its oars, as the Steve Ballmer-led organization has taken some key steps in changing the current situation. From the look of things the watchword here seems to be diversification. Regarding this, the company has made an inroad into the hardware industry.
Now this is not the first time that Microsoft has done this. It has in the past made a number of hardware products of its own including computer keyboards and the Zune music player just to mention a few. Nevertheless, with the Surface tablet computer, which was revealed in June 2012, the company is definitely taking its future into its own hands instead of leaving it in the hands of others such as Hewlett-Packard (HPQ) and Dell (DELL) that make machines for Windows to run.
Yes, with the Surface tablet Microsoft is not just diversifying, it is equally ensuring that there is a tight harmony between its software and the machines that run it. This is owing to raised expectation from consumers concerning compatibility between these two parts as a result of their experience with Apple’s iPad. Consequently, MSFT cannot afford to leave this to chance, in the hands of companies that manufacture machines that run Windows. This is more so with the competition between itself and arch-rival Apple getting tougher by the day.
Other moves that MSFT has made as far as diversification is concerned include its announcement of spending nothing less than $1.2 billion to procure enterprise social networking service Yammer. The said sum will be paid in cash. Also, prior to this, the company together with Yahoo! (YHOO) announced a search deal in July of 2009 in a joint effort against Google. So far, this effort has succeeded in taking some of the search engine market share that was previously controlled by Google.
The Yammer acquisition can help Microsoft consolidate its dominance in the business customer segment as this is a known lucrative area for the software giant. Now this is because Yammer, which is a sort of enterprise or business Facebook social network, can work hand-in-hand with Microsoft’s application for the benefit of its business clientele.
The big question
Although taking the huge step of diversifying is in the right direction for Microsoft, one big issue that it has shied away from is how its most recent plunge into the hardware industry will play out with the company’s hardware partners? This, the company recently conceded in its annual report submitted with the SEC (Securities and Exchange Commission) may affect its partners' commitment to their platform since the Surface tablet will be competing with their products
Finally, even though Microsoft is currently not occupying the enviable position it had some years back it is still a force to be reckoned with, and its diversification seems to be on point. But the company needs to find a way of at least limiting the adverse effect of its entry into the hardware market. For investors the company still offers a good value at an annualized dividend per share of $0.80 and a closing price of $30.82 as at Aug. 31, 2012.
Stocks Discussed: MSFT, AAPL, YHOO, DELL, HPQ,