The Microsoft Investor is a daily report from SAI. Sign up here to receive it by email.
MSFT Flat As Market Wavers
The market is all over the place as December retail sales data wasn’t as strong as some predicted. Shares of MSFT are up marginally. Upcoming catalysts include Steve Guggenheimer’s (OEM Division) keynote at the JP Morgan Tech Forum at CES today; holiday quarter earnings results announced after the close on Thursday, January 27; entrance and uptake in the tablet market; Windows Phone 7 adoption; strides against current market leaders in cloud computing; and continued momentum of Kinect. The stock currently trades at 8x Enterprise Value / TTM Free Cash Flow, inexpensive compared to historical trading multiples.
Microsoft Blows Target Number Away, Sells 8 Million Units Of Kinect (VentureBeat)
Since November, Microsoft has sold more than 8 million Kinect motion-control systems for the Xbox 360 video game console, 3 million more than the company had anticipated. That’s a pretty staggering number for a brand new $149 product. Steve Ballmer revealed the number sold during his keynote speech at CES last night. He also said that Xbox Live has more than 30 million active users and Microsoft has now sold more than 50 million Xbox 360s.
Microsoft Adds Netflix Streaming, Hulu To Xbox 360 (TechCrunch)
The 360 is turning into more of an all-purpose living room machine, and the Kinect is blowing up. Microsoft is extending the 360 platform to include Avatar Kinect, Netflix streaming and Hulu. It’s more stuff the 360 can do, and the central hub for media, games, and communication is obviously becoming a popular and contentious product category.
Windows Will Come To ARM Someday As Microsoft Gives Competitors A Lengthy Headstart (The Wall Street Journal)
Microsoft’s CES demonstration left many questions about the company’s strategy unanswered. Steven Sinofsky, president of Microsoft’s Windows division, made it clear that the software running on ARM processors didn’t include the user interface people will see on the next version of Windows. He declined to say when the new version of Windows will be available but there is usually a two- to three-year development cycle. The announcement is a sign that Microsoft is finally taking tablets seriously, but as Matt Rosoff at Business Insider points out, it’s going to give competitors a heck of a head start.
Google Wins First Round In Microsoft Dispute (The Wall Street Journal)
Google won a key ruling in its lawsuit against the Interior Department, two months after the search giant accused the agency of improperly favouring Microsoft in a contract bid to provide a new email system. A federal judge issued a preliminary injunction that prevents the Interior Department from deciding to use Microsoft’s email and collaboration tools for its 88,000 employees. This is a huge win for Google, but Matt Rosoff at Business Insider believes the dispute highlights Microsoft’s biggest asset as it tries to defend its huge enterprise software business: pre-existing relationships with big customers.
Fitch Affirms Microsoft’s AA+ Default Rating With A Stable Outlook (BusinessWire)
Fitch Ratings has affirmed the following ratings for Microsoft: long-term issuer default rating at AA+, senior unsecured revolving credit facility at AA+ and senior unsecured debt at AA+. The affirmations reflect modest revenue growth through the end of the fiscal year (June) driven by a continuation of the Windows 7 upgrade cycle, a renewed corporate IT refresh cycle and modestly improved consumer spending. Fitch also expects continued strong cash flow generation.