Dow Recovers From Early Drop as Microsoft Moves Higher

The Dow claws back from an early deep dive. One company helping out is Microsoft, which now has a vision for its future.

Jul 10, 2014 at 3:30PM
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The Dow Jones Industrial Average (DJINDICES:^DJI) fell 180 points quickly this morning after concerns about Portugal's Banco Espirito Santo's "material difficulties" spread to U.S. markets. The bank's stock is down 32% this week as worries about its financial position grow, but over the long term it's probably not a big worry for the U.S. The Dow has recovered somewhat to stand just 68 points in the red in late trading.  

In U.S. economic news, the Department of Labor said initial jobless claims last week fell to a seasonally adjusted 304,000, the third-lowest reading this year. The job market continues to improve steadily, and if that persists the economy should improve as well.  

Microsoft changes strategies again
Microsoft (NASDAQ:MSFT)stock was up 0.3% near the end of trading. CEO Satya Nadella today sent a memo to employees highlighting his vision for the future of the company, and it's a departure from the direction under his predecessor, Steve Ballmer.  

Ballmer was building a device and services company, hoping to expand the Xbox, Surface, and Nokia phone businesses and put more effort in their future development. Nadella won't dismantle devices, but he sees them as noncore and will instead emphasize the cloud and mobile software.  

Msft Xbox One Image

Xbox One will still be an offering from Microsoft, but it isn't part of the core strategy for CEO Satya Nadella.

Much of the memo pointed out Microsoft's need to be more efficient and customer-focused, hinting that there will be organizational changes to flatten the company. That's difficult to do in an organization with over 100,000 employees.

What investors can take away from this is that Microsoft won't aggressively move into devices as Ballmer had hoped, which is probably good because the Xbox isn't a big financial success and the Surface tablet has resulted in huge writedowns. Instead, Microsoft will put effort into the cloud, where it may be able to transition operating system and productivity dominance into a large market share. This document also lays out Nadella's vision for the company, something we've been waiting to see.

As Microsoft transitions from a business dominated by PCs to one in which enterprise, cloud, and mobile services play a bigger role, keep in mind that management is making this shift and maintaining high profits at the same time. Over the past decade, Microsoft net income is up 178% and dividends are up over eightfold. If Nadella can keep anything near that performance going he'll be a success as CEO; laying out his strategy is a good start.

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Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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