Microsoft Restructuring Plans Increase Optimism: Morgan Stanley

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Earlier today it was revealed that Microsoft Corporation (NASDAQ:MSFT) could reveal its restructuring plans as early as Thursday, and now Morgan Stanley analysts say this could be a good thing for the tech giant. Keith Weiss, Melissa Gorham and Jennifer Swanson Lowe of Morgan Stanley have an overweight rating and a $40 per share price target on shares of Microsoft.

Microsoft Restructuring Plans Increase Optimism: Morgan Stanley

The Advantages Of Microsoft’s Restructuring

Earlier this month, it was revealed that Microsoft Corporation (NASDAQ:MSFT) could shift toward a focus on devices and services by streamlining its business. Morgan Stanley analysts said because of how much overlap the company has among its offerings, it’s likely that its current structure has become “suboptimal.”

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According to the analysts, the expected result of the restructuring is a flatter Microsoft which focuses more on the integration of the company’s products rather than on individual products. This sounds somewhat like the company’s renewed focus in marketing as well as it looks to show customers how its products integrate and provide a complete experience rather than a bunch of small, fragmented experiences. The new Windows Stores at Best Buy are being developed around this concept, so it makes sense that the company’s restructuring is likely heading in this direction as well.

Possible Changes At Microsoft

The restructuring is expected to lead away from divisions according to product and toward broader divisions like Hardware and Devices, Cloud Computing and Enterprise, Apps and Services, and Operating Services. A number of Microsoft’s current functions might be removed from the business segments and report instead to CEO Steve Ballmer, like marketing, developer relations and finance.

Morgan Stanley (NYSE:MS) analysts said the new flatter structure that’s expected makes sense because of Microsoft Corporation (NASDAQ:MSFT)’s shortcomings in integration speed and also marketing. They believe that although there are risks to any transition and often transitions as great as this one take multiple quarters, the potential benefits are greater than the risks.

They cite the potential to improve execution, enhance operational efficiency and focus on growth will make Microsoft’s reorganization “a more favorable prospect for investors.” They also believe that the changes might “sharpen investors’ focus around key Cloud and non-PC Enterprise assets.”

Other Potential Catalysts For Microsoft

The analysts believe the reorganization could be a potential catalyst for Microsoft Corporation (NASDAQ:MSFT) shares, although there’s been little movement on them so far. Other possible catalysts they list are the company’s fiscal fourth quarter results, which are due July 18, and the release of Windows Blue late in the current calendar year. Also the Xbox One will be out this fall.

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