Morgan Stanley Revisits Devices And Consumer Hardware For Microsoft

In a report published Wednesday, Morgan Stanley analyst Keith Weiss reiterated an Equal-Weight rating on Microsoft MSFT. In the report, Morgan Stanley noted, “This represents the 5th edition of our multi-part Microsoft Under the Hood series, where we delve into the core components and drivers within Microsoft's main operating segments. We continue our series with an in-depth look at Microsoft's Devices & Consumer Hardware Division – a fairly small division at ~8% of Microsoft's total revenues in FY13 (moving up to 23% in FY15 with Nokia) and ~4.5% of Microsoft's gross income (moving up to 9% in FY15). However, this division receives outsized attention from the investor community given Microsoft's recent focus on vertically integrated devices, amid low market share in areas such as tablets and smartphones. "Along with its Surface tablets and Xbox devices, Microsoft's D&C hardware division will now also include revenue from Nokia handsets, starting in FQ4 given the close of the acquisition on 4/25. The key debate around Microsoft's hardware division, in our view: Does Microsoft have the right pieces in place to successfully execute on its “devices and services” strategy and what does a growing hardware component mean for Microsoft's overall margins longer-term?” Microsoft closed on Tuesday at $40.42.