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Kenneth J. Dickson

In the next series, we move to silicon chips, or at least the software that makes them necessary. We're looking at Microsoft today.

Microsoft Corporation

You won't find many people in the world who haven't heard of the Microsoft Corporation. Its founder, Bill Gates, began his company in 1975 in Albuquerque, New Mexico. Three years later he opened his first international office in Japan. It's been nothing but one success after another for Mr. Gates, Microsoft, and the Microsoft stock price thanks to good business sense and a fertile imagination.

The Early Windows: DOS to Windows

DOS (Disk Operating System) was what brought Microsoft its first real success. IBM was so impressed that after negotiations with another company failed, it hired Microsoft to provide the operating system for its IBM PC in 1981.

Microsoft went from a small business to a major software vendor for the home computer industry. In 1985 the company released the first version of Microsoft Windows, which was originally intended to be a graphical extension for the MS-DOS operating system.

Windows was a radical departure from DOS, and was intended to be a user-friendly system that any average person could use without a lot of knowledge about a computer. It's no wonder that the system caught on with the public. And with it, the Microsoft stock IPO'ed in 1986.

The Microsoft stock price soon rallied, and rallied giving early investors who stayed long an investment bonus approaching 25,000%. In fact, you could have bought the shares for as little as 10c each back then. What a bargain that was for the Microsoft stock price!

In the Office

1989 Microsoft Office was introduced, a bundle of office applications such as Word and Excel. Office revolutionized business; and typewriters began to disappear as secretaries and other communicators found how convenient and efficient Word could be.

Unlike WordPerfect and Lotus 1-2-3, Word and Excel were user-friendly and relatively easy to master. In 1990 Windows 3.0, with better user interface graphics, was released and sold over a hundred thousand copies in two weeks.

Windows was Microsoft's big revenue generator and eventually became the most favored PC platform. This was soon tweaked to become version 3.1 which went on to become Microsoft first major release for Windows.

From '95 to 360

Continuing to improve Windows, Gates had a hit with Windows 95, selling more than a million copies in the first four days of release. Microsoft branched out into computer networking and the internet, launching MSN (Microsoft Network) in 1995 to compete with AOL.

The company collaborated with NBC in 1996 to establish a 24/7 cable news station, MSNBC. Then in 2001 Windows XP was introduced; it had a new graphical user interface and was the most user-friendly system introduced up to that point.

That same year saw Xbox make its entry into the multi-billion dollar gaming industry, competing against Sony and Nintendo. Its success spawned Xbox 360, giving Microsoft a healthy share of the gaming market.

In 2008, Microsoft further diversified and extended the desktop with Vista, which received much critical acclaim, and a storm of criticism from its established users for poor support. In 2009, Microsoft seems destined to curtail the brand Vista" with Windows Seven.

2000's Doldrums

The Microsoft stock price has suffered since 2003, lately but the company's creativity and innovation practically assure it a long, healthy run as a profitable company. This alone would probably make it a wise investment, especially since computers are here to stay and Microsoft shows no signs of losing its momentum, in any of its core markets. Perhaps some of the excitement has gone out of the Microsoft stock price in recent years.

There are no competitors for the desktop that can match Microsoft's scale, diversity, stability and near-universality. Competitive threats, though, are likely to arise ‘in the cloud' as more and more desktop functions can be run on the Internet.

Doing The Business

But it's in the office that Microsoft has traditionally been a powerhouse, as businesses almost ubiquitously use both the OS and Office Software to run their operations. In the business server market, Microsoft has also leveraged its way into the Server market, with its Windows Server 2008 offering, and in the last quarter of 2009, it controlled approx. 74% of the server market.

Cloud Competitors

Google is well financed, Yahoo is down but not out, and there are any number of companies on the sidelines with similarly deep pockets that would aim to steal at least part of Microsoft's market: Sony for entertainment; Sun Microcomputer Systems for business; and, its erstwhile competitor, Apple that has been driving corporate profits with launches of its iPhone, iPod, iPad. Each new generation of product or new product has only added to the increasing clout on the desktop.

While many people see Microsoft's declining market share in many corners, this is against a much bigger install of computers than even 10 years ago, stronger competition from Apple and Linux. But the biggest problem for Windows has been persuading its own customers to upgrade. After all, Windows Seven's biggest competitor is Windows XP, which many people (myself included) still use.

In the 2000's we have also seen a flowering of Microsoft products, some of which have actually outranked the market leader in performance, stability and pricing.

Bing, Microsoft's new search engine, has gained traction in the search markets, brought some new features to bear, and even caused Google some pause; Zune is still a strong offering in the music player market with some unique features, it's still had a tough time against the more established offerings from Apple; Windows mobile is now entering version 7, and has made quite a dent in the business market, though less successfully in the consumer market; and there are other products that Microsoft keeps tinkering with to improve: Internet Explorer (now Version 9), Live/Hotmail/MSN, and many more.

Acquisitions are still being sought; and in the 2000's Microsoft has bought its top 6 acquisitions, spending in excess of $12 billion to purchase companies like aQuantitive, Visio Corp., Navision and more.

It's in the books

While these acquisitions haven't given much of a jolt to the Microsoft stock price, net income even since 12 months ending 2006 to 2009 have risen 15% despite the problems with Vista. Moving forward, Windows Seven and Windows Mobile Seven are both going to instigate a big product upgrade cycle. This should bode well for the Microsoft stock price, too.

Margins, Cash, Debt and More

Financially, the company has generous profit margins, lots of cash in its war chest, carries almost no debt, and owns some of the best known PC software in the world.

Microsoft only started paying dividends in 2003. They've increased the dividend in 7 years from 32 cents to 52 cents. Although its dividend rate is still on the low end (currently under 2%), the dividend has increased by around 60% since then. This could make this a likely short-to-medium term investment, or a decent return for someone investing for income.

Should you invest?

Would you consider investing in this company? This Microsoft stock price is still trading at 1998's price. Not taking into account the extra dividends at about US$4.83, if you'd bought at the peak of the boom, you might still be sitting on a loss.

As a maturing company though, we note that dividends and acceptance into the Dow 30 do portend slower growth for the Microsoft stock price than in the past, but these factors haven't prevented other Dow Jones Stocks from doing extremely well.

Yet, the fact remains, technology is a faster changing market than many other markets, will Microsoft still have the chutzpah to keep in the game against newer and stronger contenders?

To find out more about this stock

You can check out the easy to use Microsoft charts on Google, the wealth of information on Microsoft's Wikipedia entry...