Microsoft Vents Senior Execs--Bonds Still Good?

Author: Steve Anderson on May 26, 2010

Microsoft (NASDAQGS: MSFT)  is widely regarded as one of the major kings of all media, and with good reason. They hold pretty much the current head of the console wars, as well as a slew of other (albeit somewhat lesser properties, as far as the entertainment side goes).

And their bonds show their incredible staying power. Their 2039 bond currently sells at 112.61, a non-callable bond with a coupon rate of 5.2 percent, a yield of 4.618 percent and a Fitch Rating of an astonishing AAA.

But is all truly so well at Microsoft? Sure, the Xbox 360 pretty much owns the console market right now along with Nintendo's Wii (Sony got off to a terrible start and thus the 360 took most of Sony's market share) but there's been a note of concern for long-term watchers. Seems that Microsoft's entertainment division--the guys who handle Zune, Windows mobile phone, and the 360--just lost its president and their lead tech developer.

There's one school of thought that says this is a good thing--both execs had been with the company for years but may not have been quite as in touch with the youth market, and word is Microsoft's got a new console in the works.

Admittedly, this is a small issue for Microsoft.  Their entertainment division has never been much of a revenue generator for them--more like a loss for years--but they've done very well in absorbing that loss.  But as a credit crunch continues, will Microsoft want to continue absorbing losses on such a scale?  After all, Americans alone spend just over twenty five billion dollars annually on games; that's no small pot even to Microsoft, especially in an environment where office software may even be less valued. 

Consider it this way: there's a crunch on in commercial real estate.  Businesses are shutting their doors on a daily basis.  This means fewer customers for Microsoft's clearly core business of business software.  They already have a presence in gaming.  So chances are this may be Microsoft addressing a weakness--and looking to make a profit to supplement losses in its core business--rather than exhibiting one, and that makes their bonds look pretty attractive.

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