Microsoft Corporation should not be in the hardware business. That’s the message countless Wall Street voices and shareholders have tried to send to the firm. Satya Nadella, who took over the firm with a promise of focus on the cloud, isn’t following their orders exactly. Come October Microsoft is going to flood the market will all sorts of new hardware.
That’s according to Tom Warren at The Verge. Mr. Warren’s sources informed him of a major hardware event that the Redmond, Washington firm, is planning on hosting before the end of October. The event will, according to the tech outlet, showcase a range of new hardware including the Surface Pro 4, new Lumia Phones, a new wearable and possibly a new Xbox.
Looking at new Microsoft hardware
Microsoft has a hardware business. Despite the billions in losses it’s brought on in the last few years, the firm is intent on keeping up its fight to get into offices and homes in a less ephemeral way.
The event will involve the launch of the Surface Pro 4, the Lumia 950 and the Lumia 950 XL says the story. Other possible launches include the release of a new Microsoft Band and a slimline Xbox One.
Fighting against Microsoft hardware
Wall Street has never been a huge fan of the Microsoft push into hardware. Though some research houses are pleased at the multi-front approach the firm is taking under Satya Nadella, most are too scarred by the hardware losses under Steve Ballmer to appreciate the strides Microsoft has made in recent years.
It’s hard to blame them. Microsoft just recorded a $7.6B write-down on its Nokia buyout in the June quarter. Even the firm’s best hardware segment, the Xbox, is doing poorly right now. Nomura’s Rick Sherlund reckons that even at its height the Xbox segment was losing about $2B per year.
Microsoft shares are now selling for less than they were at the start of 2015. Given the major problems the market has been having this week, it seems likely that shares in Satya Nadella’s firm will fall once again on Friday.
Getting out of hardware
After Microsoft’s hurtful second quarter earnings numbers were filed, RBC Capital Markets warned that hardware was a bad bet for the firm. “Unless Microsoft can get to hardware break-even within two years or demonstrate sufficient offsetting value elsewhere in the portfolio, we think the company should exit the hardware business,” he wrote.
Hardware expansion is never going to keep Microsoft shareholders happy. They want to see progress in the core cloud business. They want to see the losses from Xbox and Windows Phone go away, and they want Satya Nadella to stop building hardware and start returning more money to them.
Given the October launch plans, those dreams are not likely to be fulfilled. Microsoft is going to keep working away at hardware. After the Nokia write-down losses are likely to be more forgiving, a silver lining for those with shares.