This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Microsoft Down but Not Out

NEW YORK ( TheStreet) -- After what is considered to have been disappointing second-quarter earnings results from Microsoft (MSFT - Get Report), the street seems annoyed that the software giant has now expressed interest in Dell (DELL - Get Report). What possible advantage could there be with two tech "has-beens" coming together?

Although it's true that neither Dell nor Microsoft have produced growth in sufficient quantities, there is an angle here that seems to be overlooked by many observers. For that matter, Microsoft's recent earnings report, though uninspiring to some, was actually pretty good. It suggests that Microsoft's interest in Dell is not the head-scratcher that it appears to be on the surface.

Microsoft had a lot to prove in the second quarter, after a brutal first quarter that missed both top and bottom line estimates. And with analysts filled with pessimism following Apple's (AAPL - Get Report) revenue miss, Microsoft surprised the street -- earning 76 cents per share on a GAAP basis -- beating EPS estimates by a penny. Revenue was also solid -- arriving to $21.46 billion, 3% higher year over year.

Granted 3% revenue growth is far from breathtaking. But it reverses an 8% decline in Q1. Likewise, profitability was weak -- shedding almost 4% year-over year. But relative to the 22% drop in Q1, Microsoft deserves credit for this improvement.

Then again, this is far from the performance that investors wanted to see from a dominant tech company -- an issue that has long been a source of aggravation among analysts. However, that Microsoft saw 34% sequential improvement suggest that Windows and Surface are beginning to gain traction, which brings us to the company's interest in Dell.

For instance, the 24% growth of the Windows division was a welcomed surprise -- especially since it followed a 33% plunge in Q1. As a result, Microsoft was able to grow its operating income by 14%. The company said that this was attributed to the better-than-expected performance of Windows 8, which was launched in October.

All of this means that although Microsoft's PC dependency is seen as a dark tunnel, at least a light has now been sparked. And Microsoft just realized a way for Dell to make this light brighter. It's no secret that Microsoft wants to adopt Apple's ecosystem model.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
DELL $0.00 0.00%
AAPL $130.28 0.00%
AMZN $445.10 0.00%
HPQ $33.26 0.00%
MSFT $47.87 0.00%

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs