by Norman Young (Analyst at Morningstar)
Although the conventional wisdom regards Microsoft as a technology giant in decline, we see glimmers of a more cohesive strategy through new Windows.Microsoft has been a step behind as competitors and new technologies have slowly eroded the moat around its Windows PC operating system. We believe Microsoft's new multiprong strategy to compete in the world of cloud computing and mobile devices should help rejuvenate its Windows OS and software franchise by creating a more cohesive user experience among multiple devices, which should strengthen the links among the users, the OS, and the application software.The moat around the Windows operating system is the result of high switching costs that are due to an easy-to-use OS that is tightly integrated to diverse suites of application software, combined with the network effect of massive global market share that creates sticky users. The rise of cloud computing has weakened the links among users, the Windows OS, and its integrated application software suites, while also reducing the network effects as consumers discover acceptable OS and software substitutes. The rise of alternative computing devices further weakened the links between consumers and the Windows ecosystem by replacing the traditional desktop PC and changing usage patterns.
Although Microsoft is playing catch-up, Office 365 is its response to competing cloud-based productivity tools, offering subscription-based services for Office, Exchange, Lync, and Sharepoint. We think compatibility and continuity concerns will drive professional users to Office 365, helping to maintain the size of the installed base, which should reinforce the network effects of the Windows franchise. Given the substantial capital investment required to build and maintain such a robust cloud offering, we believe there are significant barriers to entry for this business that will limit entrants, allowing Microsoft to generate high returns on its investment over the long term.
Windows 8, the Surface tablet, and the Windows Store flesh out Microsoft's response to the challenges facing its Windows franchise. The new Windows OS will be used across many devices, providing a smooth, more cohesive user experience from PC to tablet to smartphone. The Surface and other Windows-based tablets are Microsoft's first foray into tablet computers; we believe a tablet that runs the Office productivity suite is more appealing to many consumer and business users relative to competing devices. The final piece of the strategy is the Windows Store, a digital distribution platform for Windows 8 where users can purchase and download apps, which is meant to create a community and marketplace for developers and consumers.
Many of these products are "me too" ideas, but we believe the combination of these products and services will build customer stickiness across multiple devices, which should help slow, stop, or possibly reverse the decline of the Windows franchise. We do not expect all facets of this strategy to be successful in the near term, but Microsoft has a record of investing significant resources over long periods in pursuit of its objectives. As the company works to reinvigorate its Windows division, the server and tools division remains a stalwart as its server and SQL database products continue to gain share even as the global market expands. Microsoft Business Division has seen solid growth in following the release of Office 2010; Office 2013 expected to be released in December 2012. Combined, the server and business segments represent 58% of total revenue and contribute 66% of operating income--enough to shoulder the load as the Windows makeover unfolds.
Valuation
Our fair value estimate is $35 per share, which implies a 2013 price/earnings multiple of 11.9. We forecast slowly declining revenue growth from the Windows division over the next 10 years because of a short-term slow erosion of market share of Windows-based PCs. We expect Windows 8, RT, cloud strategies, and Microsoft's entrance into tablet computing to slow the erosion in market share over the next three years. We forecast long-term revenue growth in the server and tools and business divisions, but we expect the hardware and management costs of cloud technologies will weigh on Microsoft Business Division's operating margins over the long term. Given the less advantageous pricing and poor economics associated with having a lower market share in the search business, we forecast that the online services business remains unprofitable for the foreseeable future.
Risk
Microsoft's flagship Windows operating system and Office productivity software suite are under assault from tablet computers, cloud alternatives, and OS X offerings from Google, Apple, and open-source providers like Linux. Windows-based PC shipments have slowly eroded from approximately 95% market share a decade ago to 90% today owing to shifting consumer preferences and the rise of OS X and Android-based tablet computers and smartphones. With the release of Windows 8, the Surface tablet, and the pending release of the Nokia Windows phone, Microsoft hopes to reverse market share declines while establishing beachheads in the smartphone and tablet markets. We believe the Surface and upcoming OEM Windows-based tablets are good first efforts and the inclusion of Office should help broaden the appeal of Windows tablets to traditional laptop users in addition to tablet users.
Management & Stewardship
Given their combined equity stake of 9.4%, we believe CEO Steve Ballmer's and chairman Bill Gates' interests are probably aligned with shareholders. Ballmer has served as CEO since January 2000 and has been with the company since 1980. He has done a satisfactory job building and protecting the core businesses, but the company has consistently had to play catch-up in key growth areas (Internet, online commerce, social networking) over the past decade. Large acquisitions in an attempt to regain lost ground (aQuantive and Skype, for example) have had a mixed record at best. Ballmer's fiscal 2012 performance-related bonus was reduced 4% because of slower-than-expected progress in the online business and a decline in Windows revenue.
Overview
Financial Health:
Microsoft has more than $66 billion in cash and cash equivalents and approximately $12 billion in debt. We expect the company to generate about $20 billion in annual free cash flow, enabling it to comfortably service debt while investing in the business.
Profile:
Microsoft develops and sells software, hardware, and services. The company is organized into five business segments: Windows and Windows Live, Microsoft Business Division, server and tools, online services, and entertainment and devices. Microsoft Business Division is the largest component of revenue at 33% in fiscal 2012, with server and tools and Windows and Windows Live each contributing 25%, entertainment and devices 13%, and online services 3.9%.
Hiç yorum yok:
Yorum Gönder