Microsoft Corporation (NASDAQ:MSFT) will be holding a Financial Analyst Meeting (FAM) on September 19, which analyst Brent Thill and Reid Menge of UBS Investment Research, feel “Holds Critical Importance.”
Investors need more clarity on Microsoft Corporation (NASDAQ:MSFT) transition
Microsoft Corporation (NASDAQ:MSFT) feels that transformation of the company from a software to a hardware and cloud services vendor presents better opportunity for the “LT trajectory of enterprise IT.” But due to the ongoing transformation to lower-margin hardware and sub-scale cloud services, earnings have become all more uncertain, believe the analysts. Therefore, it becomes all more important for the company to give a “convincing argument” on profits that the stakeholders can expect from this transition.
Laying clear plans have helped other companies before
Analysts believe that laying out clear multi-year strategic plan to investors will certainly help Microsoft, as it has benefitted companies like Adobe Systems Incorporated (NASDAQ:ADBE) and Symantec Corporation (NASDAQ:SYMC). Also, International Business Machines Corp. (NYSE:IBM), Intel Corporation (NASDAQ:INTC) and VMware, Inc. (NYSE:VMW) gave information on multi -year financial plans to investors, which helped the investors greatly in analyzing the prospects of the respective firms.
5 points that need to be addressed by Microsoft Corporation (NASDAQ:MSFT)
The analysts lists out five points, which they feel should be addressed during the FAM.
1) Microsoft Corporation (NASDAQ:MSFT) should provide information on the short and long term earnings prospects with reference to the ongoing transition. Lack of clarity over earnings projections due to “cyclical and structural factors” has been one of the reasons for the lackluster performance of the company’s stock.
2) Analyst expects more details on the financial performance of Microsoft’s cloud portfolio, including information on the trends regarding enterprise adoption versus on-premise for its key enterprise products. Microsoft Corporation (NASDAQ:MSFT) has been providing incremental financial data points of its investment in cloud related features like Office 365 and Azure.
3) In the fourth quarter, Microsoft Corporation (NASDAQ:MSFT) took a charge of $900 million, and disclosed that it sold $853 million worth of Surface. According to analysts, this strategy needs clarification on “whether the strategic nature of being in hardware outweighs the low margins and financial returns (at least so far) and feelings of consternation amongst its highly strategic channel and OEM partners.” Microsoft must also provide information on how it plans to improve the sales of this segment going forward.
4) With a growing cash position and FCF, from $38 billion and $16 billion in 2005 to $77 billion and $25 billion in 2013, analysts expect “creativity with its capital allocation strategy.” The analysts expect Microsoft Corporation (NASDAQ:MSFT) to use the liquidity to return money to the shareholders in the form on dividends and buybacks.
5) Microsoft Corporation (NASDAQ:MSFT) must also provide information on the succession planning as to who will replace Steve Ballmer as CEO. Investors need to know the company’s succession plans to get a better grasp on the strategic direction of the company.