Microsoft Corp. Expected To Deal Better With Surface

Microsoft unveiled its tablet computer Surface doing a Karaoke cover over a two-year-old Apple hit. Named Surface, the device looks similar to Apple’s iPad AAPL -0.28% integrated with a kickstand that doubles as a keyboard. The pricing remains unannounced. Stock investors are keeping expectations low in regards to the new device. This was because Kin and Zune, Microsoft’s 2010 phone and 2006 music player flopped respectively.

Surface Tablet

The stock market is unpredictable and it has a way of evolving the dull companies into alluring stocks. This is accomplished with reducing the share prices to modest amounts, which is relative to the cash flow.

Microsoft Corp. MSFT +0.75% present stock market value is $250 billion. Sitting on $40 billion cash and it has turnover of more than $27 billion in free cash over the last year. The rate slowed to $20 billion per year, the company can still pay for itself for a decade. The stock amount 2.7% dividends, with the corporation spending more on share repurchases than dividends.

The challenge Microsoft is facing is paramount. Local installed programs have replaced the websites and thereby the users are being independent of Microsoft Windows, operating system, a key generator of cash. The company has also missed the sweeping adoption of smartphones and tablets. Most of these advanced paraphernalia has currently placed computers being introduced to the audience of operating systems of Apple and Google Inc. GOOG -0.69%

Acknowledging the problems led to Microsoft launching a new operating system Windows 8. This is devised to work on tablets and computers. The new Surface tablet computer would be the adept platform to display the software. On the other hand, Office 365 brought forth a Cloud-based subscription model for the company’s popular productivity software. Azure also provided a computing platform for the developers related to the Cloud based programs.

Microsoft plans to extract as much cash as possible from the old model while establishing a stable income under the new model. The Windows 8 is geared up to provide a short-term boost. The Wall Street aficionados expect the profit of Microsoft to augment 15% during the next financial year beginning at the end of this month.

The conundrum lies as what will happen in the following year. Whether income from the Cloud based platform and related services would be enough to make up for the expected declines in installed computer software is still to be seen. This makes Microsoft shares look risky. However, there are the riskiest stocks like Facebook FB -0.97% that is based on ambitions valuations and uncertain profits. Earning 11 times more, Microsoft has already been priced in the decline. This means it can merely preserve the income and say nothing about growth, making the stock pay off adequately.

However, it hinges on doing wise things with the cash. Worrisome, more than the Zune and Kin, was the offer to buy Yahoo Inc. YHOO +0.58% at 66 times its earnings. Yahoo, Inc. lost more than two-thirds of its stock market value. All hopes are pinned on Surface and its delivery of performance.

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