Wednesday January 18, 2012
by Richard Moroney, editor Dpw Theory Forecasts
Microsoft (MSFT) recently hit a 52-week high lifted by enthusiasm about new products. And Intel (INTC) has bounced 25% from October lows.
Over the last ﬁve years, Microsoft spent more than $44 billion on research and development, more than any other U.S. technology company.
But after a series of ﬂops, the software giant has failed to do much in mobile devices. Despite positive reviews regarding its design and ease of use, the company’s Windows Phone operating system powers less than 2% of the world’s smartphones.
Microsoft’s Windows 8 operating system will go on sale sometime this year, partnering with longtime collaborator Intel’s hardware to give both companies their ﬁrst legitimate shot at the tablet-computing market.
Meanwhile, Intel’s difﬁculties breaking into mobile computing have weighed on shares of the semiconductor giant.
A viable Wintel tablet-computer option could appeal to users who seek security features and seamless interface with both desktop and server computers that use Microsoft operating systems. We’ve heard similar songs before, and Microsoft in particular has a lot to prove.
But a Microsoft/Intel partnership would bring unprecedented research and marketing heft to a tablet environment still dominated by Apple’s iPad.
On the phone side, AT&T and T-Mobile announced plans to sell Nokia’s Lumia smartphones, devices not only powered by Windows Phone, but designed speciﬁcally to use the software.
If Microsoft can muscle its way into the tablet and smartphone markets, projections for per-share-proﬁt growth of 2% this year and less than 10% annually over the next ﬁve years should prove conservative.
And Motorola Mobility and Lenovo will start selling smartphones with Intel chips this year. Intel still looks cheap, trading at 10 times trailing earnings, a discount of 36% to its ﬁve-year median
A slowdown in computer sales due to ﬂooding in Thailand could affect Microsoft and Intel, though we won’t know the impact until quarterly results start ﬂowing in. Nevertheless, Microsoft and Intel are both rated as Focus List Buys.
Learn more about this financial newsletter at Richard Moroney's Dow Theory Forecast.