Tags: MSFT | Microsoft | utility | stock

Microsoft: More a Utility than Innovator

By    |   Tuesday, 02 Aug 2011 12:26 PM

Microsoft (MSFT), the world’s biggest software maker, might instead be called the world’s biggest utility. Over the last decade its shares have moved little — more like a staid power provider than a cutting-edge technology company. Microsoft has ceded its former tech leadership to companies such as Apple (AAPL), Google (GOOG) and more recently Facebook. The steady share price now comes with a solid dividend, just like a utility stock, producing a recent yield of 2.4 percent.

Microsoft’s Windows PC operating system and Office suite of productivity software, the guts of the company’s operations, are a cash cow, though one whose growth is slowing. That’s similar to the function of regulated power operations for many utilities.

Again like utilities, Microsoft has sought to expand operations beyond its core segments, with mixed results. The software giant has experienced huge success with its Xbox game console. That product helped boost sales in Microsoft’s entertainment and devices division by an impressive 30 percent to $1.49 billion in the fiscal fourth quarter ended June 30 from a year earlier.

Of course, that figure represents less than 10 percent of the company’s overall revenue, so Xbox isn’t going to send Microsoft’s stock back to its high-flyer status of the 1990s.

Meanwhile, Microsoft continues to lag competitors in mobile devices, one of technology’s hottest sectors. The company is working on a version of Windows that can be deployed on tablet-style computers similar to Apple’s iPad. Yet while previewing the product in June, Microsoft officials couldn’t say when it will hit the market beyond that it won’t be available by fall. On the mobile phone side, the company acknowledges that sales totals are disappointing.

Earnings rise

Microsoft remains an earnings juggernaut, with profit surging 30 percent in the June 30 quarter from a year earlier, to $5.87 billion, and revenue climbing 8 percent to $17.4 billion.

Analysts expressed optimism about the results. Goldman Sachs has raised its target for Microsoft shares to $32 from $31, while Credit Suisse set a target of $40. The stock recently traded at about $27.

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Microsoft (MSFT), the world s biggest software maker, might instead be called the world s biggest utility. Over the last decade its shares have moved little more like a staid power provider than a cutting-edge technology company. Microsoft has ceded its former tech...
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2011-26-02
Tuesday, 02 Aug 2011 12:26 PM
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