Microsoft MSFT has reportedly cut the price of Windows 8.1 by 70% for tablets and low cost computers. Original equipment manufacturers will now pay only a $15 license for Windows 8.1 if they install it on devices that sell at retail for under $250, this compares to the previous license cost of $50.
No matter how you look at it, a 70% price cut on an operating system that until recently dominated the computing world with 95% market share shows the desperation and challenges facing Microsoft. Look no farther than the press release from Amazon.com AMZN touting its holiday sales, the bestselling laptops were Samsung and Acer Chromebooks that do not run on Windows.
Chromebooks run on an inexpensive Chrome operating system from Google GOOG and are a lot less capable than Windows-based computers. For the most part Chromebooks act as a thin client and are used when connected to the Internet and the data is stored in the cloud. There are some apps that can run offline. In spite of many weaknesses, Chromebooks have enough capabilities for light users who are doing nothing more than browsing the Web and using email and Google apps.
On the surface, Microsoft stock appears inexpensive. It trades at a trailing P/E of 14 and a forward P/E (FY June 2015) of 13. The PEG ratio (5-year expected) is 1.88. The deep cut in Windows price illustrates that future estimates of Microsoft earnings and growth are not reliable; therefore there is significant risk in Microsoft stock.
Microsoft stock has moved up on the popularity of Xbox 360, appointment of a new CEO Satya Nadella and a $2 billion bet by activist hedge fund ValueACt…Read more at Forbes
