MICROSOFT CORP. $30 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 8.4 billion; Market cap: $252.0 billion; Price-to-sales ratio: 3.4; Dividend yield: 2.7%; TSINetwork Rating: Above Average; www.microsoft.com) gets 80% of its sales from its Windows operating system and Office suite of business software. However, the company is taking steps to expand into other areas, as well.
For example, Microsoft recently entered into an alliance with Nokia Corp. (New York symbol NOK). Under this deal, Nokia will make mobile phones that use Microsoft’s Windows Phone software.
Microsoft also paid $8.5 billion in October 2011 for Skype Global. Skype’s software lets computer users make free phone calls over the Internet. Microsoft feels that Skype will enhance its Xbox Live service, which lets users of its Xbox video game consoles communicate with each other online.
In its fiscal 2012 second quarter, which ended December 31, 2011, Microsoft earned $6.62 billion, down slightly from $6.63 billion a year earlier. Earnings per share rose 1.3%, to $0.78 from $0.77, on fewer shares outstanding.
Sales rose 4.7%, to $20.9 billion from $20.0 billion. The company continues to see strong sales growth from its Xbox video games (up 15%), server software (up 11%), online services, such as its Bing search engine (up 10%), and Office (up 3%).
However, sales of Windows fell 6% as floods in Thailand have caused a hard drive shortage. That has slowed sales of new computers, most of which come with Windows pre-installed. Consumers are also putting off buying new computers until Microsoft releases the next version of Windows later in 2012.
Microsoft spent $2.4 billion (or 11.4% of its revenue) on research in the latest quarter. That’s up 8.5% from $2.2 billion (or 11.0% of revenue) a year earlier.
The company can easily afford to keep making acquisitions and spending more on research. Its long-term debt of $11.9 billion is a low 5% of its market cap. It also holds cash and investments of $51.7 billion, or $6.17 a share.
Microsoft trades at just 11.2 times the $2.69 a share that it will likely earn in fiscal 2012. The $0.80 dividend yields 2.7%.
Microsoft is a buy.
