New Threads Only:  Add to Google Reader or Homepage
New Threads & Replies:  Add to Google Reader or Homepage
Forums are for serious investors only. GuruFocus Forum Rules.

Forum List » Value Ideas and Strategies
Share and discuss value investing ideas and investing strategies.
New Topic
Goto Thread: PreviousNext
Goto: Forum ListMessage ListNew TopicLog In
Is Microsoft Worth Investing In?
Posted by: Black Iguana (IP Logged)
Date: November 21, 2013 05:33PM

Microsoft Inc. (MSFT) is back in the game. The recent surge in MSFT’s share prices is said to be highest since 2000. This event has raised a question in quite a few minds: Will MSFT’s shares continue performing this way? I will try to answer this question through this article.

Microsoft, the tech giant, has a P/E ratio of 14 which is far lower than the P/E ratio above 50 which was prevalent the last time its shares were priced at $38. However, on comparing it with that of other mega-cap tech companies, Microsoft’s stock is costlier. Intel Corporation (INTC), for that matter, is one company which can be compared with Microsoft in terms of share prices because both the giants find themselves in similar conditions. Both the companies have steadily growing sales. On one hand Intel sees a huge increase in its server sales while Microsoft has seen the same in its variety of software, business services and tools. This is not the only similarity in trends of growth in the two companies. Some of the other similar, rather negative, trends are:

· Both the companies are facing a declining PC market.

· Both the companies are struggling to gain share in mobile market.

Having said that, it is important to mention that Microsoft is in a relatively weaker position than Intel in the mobile market. Despite its commercial licensing sales being similar to Intel’s enterprise sales growth and the PC market decline affecting both the companies almost equally, MSFT has an uphill task to gain in terms of mobile shares.

Intel Vs. Microsoft in Mobile Markets

Presently, Microsoft has a paltry 3.6% share in terms of smartphone and tablet sales. Intel, however, has done better than Microsoft in this segment. It has a much larger share of tablet sales and is also the chief supplier of chips to Android powered tablets including many supplied by Samsung, Dell as well as MSFT’s surface Pro Tab. Intel, however, can make a sale only till it can keep coming up with chips that suit and meet the requirements of a tablet or a smartphone at the right cost. On the other hand, Microsoft has to sell not just the Windows Phone or tablet but the entire Windows platform to the consumer. This is a lot harder to do and even MSFT finds it difficult to market the tab, as they’ve launched two versions of Windows operating system viz, Windows RT and Windows 8 for PCs and tablets.

Now, if we ask ourselves what has been the reason for MSFT’s good performance, the answer would definitely be people’s sheer hopes tied to the fact that Microsoft is set to welcome a new CEO. With the change in management people expect a rise in shareholder value and hence the run up in stocks. With a lot of names doing rounds for the post of CEO, Alan Mulally, the ex-CEO of many a top companies like Boeing and Ford, and Stephen Elop are rumored to be the top contenders for the job.

Mulally Vs. Elop:

Mulally, considered one of best CEOs in the U.S., has a great track record of turning around the fortunes of companies like Boeing and Ford. His policies might be working well for Boeing and Ford, but one cannot guarantee the same for MSFT. Obviously things could change for Microsoft once Mulally takes over but what should be noted is that both of the companies Mulally earlier headed were different from Microsoft in many aspects:
  • Both Boeing and Ford make a limited range of products for a mature market; therefore there is hardly a visible change in technology and hence consumer tastes.
  • Both the companies are a part of a labor-intensive industry where Mulally has shown great qualities as a leader.
All this can come in handy for MSFT. This is because Microsoft after purchasing Nokia has a huge workforce of about 120,000.

Elop on the other hand has been an expert at handling tech companies. He has a sound knowledge of software. Reports suggest that he has shown keen interest in selling products like Xbox and Bing and allowing office to be used by Android and iOS devices. Elop used to head MSFT’s office division and has a huge reputation in terms of his cost-cutting techniques which Microsoft has been aiming at for a while now.


Even after a change in the management there is a little chance of Microsoft to keep performing the way it is in future. This is because the company has raised interest among the investors by announcing a new CEO. Let’s say that the targets don’t meet the expectations, which has been quite a regular thing for the company, the stocks will hardly perform. Thus, the investors must be cautious enough at the moment and think about the long run. I would suggest them to take a deep breath and sit back and watch things unfold at the scene and invest only if they find it profitable.

Stocks Discussed: MSFT, INTC,
Rate this post:

Rating: 2.3/5 (10 votes)

Sorry, only registered users may post in this forum.

Please Login if you have an account or Create a Free Account if you don't
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)