Microsoft's Hardware Push Will Drive Gains
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It looks like software giant Microsoft (NASDAQ: MSFT) - currently trading at around $30 - is making another foray into the hardware business. The company recently announced plans for a new tablet computer called the Surface. This move into the tablet computer market should be welcome news to investors, as Microsoft could reap some of the profits generated by Apple's (NASDAQ: AAPL) extremely popular iPad. With this news, as well as the impending release of Windows 8, it could be the right time to invest in Microsoft, if you haven't already.
In a gaudy launch event reminiscent of ones put on by the late Steve Jobs, Microsoft CEO Steven Ballmer debuted the Surface in front of a Los Angeles audience. The Surface will essentially be an alternative to the iPad, but most notably, it will run using the upcoming Windows 8 software, which will only add to the hype surrounding the release of the Surface. This is not Microsoft's first entry into hardware, as the company has previously released video game consoles Xbox and Xbox 360, as well as its Zune music player. The Xbox systems have been wildly successful; the Zune not so much. Since Microsoft is a software company first, some are weary of the company spreading itself too thin by trying to make a dent in the hardware market, but I think this is a great move by the company, as sitting idly by while Apple reaps the lion's share of tablet profits would be absurd.
One complicating factor in the announcement of Surface is the fact that in getting in the tablet hardware game, Microsoft will actually be competing with many of its hardware-producing customers who buy Windows 8 to run on their devices. Companies that could be affected include Research In Motion (RIMM) and Hewlett-Packard (HPQ). It is yet to be seen how this will affect relations between Microsoft and its customers, but it is a potential worry. However, if Windows 8 is as good as many people believe it will be, it won't matter. Those other companies will want Windows 8 to run on their systems, regardless of whether or not Microsoft cuts into their hardware profits.
The move will also be seen as a threat to companies like Barnes & Noble (NYSE: BKS) and Amazon.com (NASDAQ: AMZN), producers of e-readers Nook and Kindle, respectively. This is because while the Nook and Kindle are e-readers and not tablet PCs, tablet PCs can essentially function as e-readers. Barnes and Noble and Amazon saw Apple cut into their profits with the release of the iPad, and they will undoubtedly see similar losses once Microsoft rolls out the Surface. Bad news for Barnes and Noble and Amazon investors; good news for Microsoft's.
Microsoft's stock will undoubtedly see at least a temporary bump on the news of the Surface. But there's something else on the horizon that makes me confident buying into Microsoft right now could be quite profitable: the impending release of Windows 8, which could be available to the public this fall. I would be extremely surprised if Microsoft's stock didn't shoot up pretty significantly once Windows 8 is released. Microsoft is banking on people clamoring for Windows 8 in any form, as you could even argue the Surface is as much about expanding Windows users as anything else. The company is also expected to roll out more information about its upcoming Windows 8 phone in the near future. Essentially, Microsoft is putting all of its eggs in the Windows 8 basket. If the operating system is as great as many believe it will be, it's hard to imagine the company's stock going on the uptick for the foreseeable future.
Upcoming releases for Microsoft are not limited to just the Surface and Windows 8. Another product people are getting excited about right now is SmartGlass, which allows connectivity between mobile devices and the Xbox 360. There have also been some leaked documents regarding the upcoming Xbox 720, Microsoft's next generation video game console. In my view, the 720 is the surest bet of the bunch. The 360 is regarded by many as the premier video game console in the world, and the 720 will undoubtedly be a game-changer. The system is currently on track for a 2013 release. With all of these product releases on the horizon for Microsoft, it certainly seems like the right time to invest.
With all of these product releases, it may look to some that Microsoft is spreading itself too thin. But I actually think it's a good sign that the company is diversifying itself more than it used to. Instead of focusing solely on software, the company is realizing it can be quite lucrative to get into areas such as video games and, potentially, tablet PCs. Motley Fool blogger Max Borders considers Microsoft a "safe, steady investment," citing its dominance in operating systems and video games, as well as its increasing presence in web servers and mobile operating systems.
"As more of these technologies converge and diverge, Microsoft is going to be able to leverage assets across categories to positive effect," Borders argues. "And for the foreseeable future, their guarded watch-n-wait strategy will work well."
Overall, it really does look like a promising future for Microsoft. Even if the Surface doesn't take out the iPad, Windows 8 should be quite successful, and the Xbox 720 even more so. Since there's still some time before any new releases will come out, the time to get in is now. Microsoft is by no means a sure thing, like if Windows 8 is not as successful as hoped, that could spell trouble for the tech giant. But right now, I would be quite happy investing in a great tech company like Microsoft, who continues to innovate even in tough economic times. The bottom line: Microsoft could be poised to pop.
jewishitalian31 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, and Microsoft. Motley Fool newsletter services recommend Amazon.com, Apple, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.