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MSFT Sideways As Market Drops
Markets are dropping as stocks are hitting 13-month lows on European banking crisis fears as well as Greece going into default. Shares of MSFT are sideways and trying to find footing. Upcoming catalysts include first fiscal quarter earnings announcement on Thursday, October 20 at 5:30pm ET; Windows 8 and entrance into the tablet market; Windows Phone 7 / Mango rollout and adoption with hardware partner Nokia (see below); strides against current market leaders in cloud computing; making money in the online business, including integration of Skype and improving the search / display business; and continued evolution of Kinect and next generation Xbox console. The stock currently trades at 6.9x Enterprise Value / TTM Free Cash Flow.
Here Come The Windows-Based Nokia Phones (Reuters)
Nokia will unveil its first Windows-based smartphones this quarter and sooner than expected. In a signal that more handsets may be forthcoming, CEO Stephen Elop talked of introducing “products” in the current quarter. The world’s largest phone maker by volume, announced a high-risk new strategy at the start of the year to ditch its home-grown Symbian software for a deal with Microsoft. And both of them desperately need to get on the map here.
Ballmer Not Awarded Full Bonus For Fiscal 2011 Because Of Weak Revenue (BusinessWeek)
Steve Ballmer wasn’t awarded his full bonus for fiscal 2011, citing lower-than-expected sales of phones based on the company’s software and a drop in revenue in its Windows unit. Ballmer received $1.38 million in pay, according to a filing with the U.S. Securities and Exchange Commission. That included a bonus equal to 100% of his base salary, half of the maximum he could have been awarded. Still, the board noted in the filing that it regards Ballmer as “underpaid.” COO Kevin Turner was the highest paid company executive this year, with a total compensation package worth about $9.3 million.
Why Is Microsoft Still Investing In Hotmail? (Business Insider)
Yesterday, Microsoft showed off some updates to Hotmail that will help users get a grip on so-called “grey mail.” But here’s a question. Why is Microsoft even in the email game? Hotmail costs lots of money to maintain and is insignificant to Microsoft’s business. But, it’s still the leading email service worldwide, with more than 350 million users. And nobody wants to throw away 350 million users. So the company has decided it might as well do as much as possible to make it competitive.
A Smart Covered Call Strategy For Microsoft (Seeking Alpha)
An investment in Microsoft offers some downside protection, given the inexpensive multiple and a yield well in excess of U.S. Treasuries. Here are two examples where investors could sell forward covered call options to increase the effective yield on the investment:
- Sell a November 2011 call option with a strike of $27 per share for $0.45 per share. This provides an additional 1.8% of yield through November.
- Sell an April 2012 call option with a strike of $30 per share for $0.57 per share. This provides an additional 2.3% of yield through April.
A covered call strategy helps generate additional yield and can be considered as a way maintain potential upside if economic conditions turn positive while generating yield in what could be as a volatile sideways market.