THE MICROSOFT INVESTOR: Is Today The Day Microsoft's Mobile Biz Comes Back To Life? (Nope)

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MSFT Shares Up This Morning
MSFT shares finished last week on a tear (up over 3% Thursday and Friday) and are up again today at about $30.45.  MSFT currently trades at 13x Enterprise Value / Trailing Twelve Months Free Cash Flow. Upcoming catalysts include March quarter results (Windows 7); continued search gains (or losses); and future Windows announcements.  We doubt today’s mobile announcement will mean much.  Over the long haul, we think Microsoft is in a challenging spot, as the world moves away from PC-based computing toward cloud and mobile computing.

Will The New “Project Pink” Phones Breathe Life Into Windows Mobile? (TheStreet.com)
Today Microsoft is expected to unveil two new phones at an event in San Francisco.  The phones are being dubbed the “Pink” phones.  One “is said to be a clamshell phone while the other will use a candy bar form factor.”  The company is hopeful the phones, which target younger consumers and apparently incorporate a lot of social network features, will help it compete for smartphone OS share.  The phones will eventually run on Windows Mobile 7.  With Apple expected to launch a Verizon iPhone soon and Android rapidly gaining smartphone OS share, this is an uphill battle for Microsoft, and we don’t think they’ll succeed.

Improving Interest Rates Could Boost EPS Due To Microsoft’s Mountain of Cash (Morgan Stanley)
Morgan Stanley analyst Adam Holt thinks the $40 billion in cash Microsoft has compiled on its balance sheet over the years could lead to a $0.04 boost to earnings-per-share (EPS) this year due to increasing rates of return on cash.  Holt also believes the company will buy back some stock this year and is authorised to purchase up to $30 Billion through September 2013.  This would also boost EPS and would indicate to investors that management believes the stock is undervalued.

Forrester: Cloud Computing Is A Threat AND Opportunity For Microsoft (Barclays)
On a call hosted by Barclays analyst Ben Reitzes, a Forrester research analyst says Microsoft is in a great position to be a leader in the rapidly-growing cloud computing market.  However, it also risks being left behind.  Here are some highlights:

  • The software-as-a-service (SaaS) category will have over 10 thousand vendors over the next 10 years, so expect many years of growth.
  • “For Microsoft, S-a-a-S creates both opportunities and longer-term threats. Microsoft is already having success moving some of its applications into the cloud (Microsoft Exchange Online, for example) but…over time, we believe there is a legitimate scenario whereby a new generation of consumers first look to the cloud for their applications needs, resulting to some loss in Windows influence.”

We think the loss of Windows influence is a given.  That’s what has allowed Apple to come roaring back.

Don’t Forget, Microsoft Is Thinking About Offering An “iPad-Like” Device Too (New York Times)
The New York Times points out that companies like Google, Nokia, and Hewlett-Packard all have iPad-like devices in the works, indicating the battle for tablet dominance has only just begun.  In addition, “Microsoft, the maker of computer software, is flirting with the idea of selling its own version of a slate.”  Based on previous Microsoft efforts here, we’re doubtful Microsoft will make much headway in this market.  But we look forward to seeing the products.

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