The computer and software industry is one of the most in-demand sectors in the present digital age. Information Technology is developing at a very fast rate and demand for the latest developments is rising by the day. The companies in this industry create computer software and programming services. The leading companies include Cognizant Technology Solutions (NASDAQ:CTSH), IBM Software (NYSE:IBM), Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL) and Symantec (NASDAQ:SYMC). The greatest market of the software products is the U.S. economy, which forms about 70% of the market share.
The software industry evolves at a very high rate that causes the user to keep keen track of the latest trends and hence take advantage of the additional efficiency in the product. The most recent developments and innovations in the industry include the introduction of cloud computing and software as a service (SaaS), which allows the software vendors to avail their services via the Internet. This has been widely utilized by firms in the industry as a competitive edge. Mergers, partnerships, acquisitions and strategic alliances between business software companies have been prevalent in a bid to reduce competition and increase the production base.
According to the computer business review, the mergers and acquisitions recorded a 6% increase in FY 2012. The Internet has been the major contributor in the development and sale of the software services, but there has been a crisis between the Internet providers and software-developing companies as a result of prevalent software theft and release to the public by malicious operators and hackers. This has caused a major slump in the industry and still stands as the major concern in terms of sale of software through the Internet. The global IT spending increased by 1.2% in FY 2012, which is a fall from the previous rise by 7.9%.
However, Gartner asserts that the industry IT spending is expected to rise in FY 2013, with an estimated 4.2%. Gartner projects a total growth of 6.4% in the software industry in FY 2013 with estimated revenue reaching $300 billion. If this happens, the industry will have recorded a 6.8% growth rate from the FY 2011 to FY 2013. A further extrapolation of the growth rate in the industry indicates a consistent rise that may hit the $360 billion in FY 2016.
Microsoft is the mother firm in the computer software development and still takes the lead in the industry. The company is also engaged in design and sales of computer hardware. The firm operates in five segments, namely the Windows and Windows Live Division, the Server and Tools Online Division, the Microsoft Business division, and the Entertainment and Devices Division. The company offers a wide range of business and personal-based computer support inclusive of cloud computing as one of the recent developments in the industry. In FY 2011, the company acquired Skype Global Sarl and VideoSurf. Some of the most recent moves by Microsoft were the purchase of Edgewater Fullscope's Process Industries 2(PI2) software intellectual property, PhoneFactor, and Yammer in FY 2012. In the same financial year, Comcast (NASDAQ:CMCSA) acquired Microsoft's 50% stake. Microsoft has also acquired Netbreeze GmbH in FY 2013. The main competitors of Microsoft include Nintendo (OTCPK:NTDOF), Apple (NASDAQ:AAPL), Sony (NYSE:SNE), Google (NASDAQ:GOOG), and BlackBerry (NASDAQ:BBRY).
The chart below illustrates an excerpt of the income statement for Microsoft in the FY 2012 and FY 2013. The revenue has recorded a rise from $17,407 in FY 2012 to $20,489 in FY 2013. This can be attributed to the creative developments especially in the emerging and highly demanded applications. The ability to maintain high-quality and positive trends has earned the company good reputation and preference among the competing firms.
Income Statements (in Millions, Except Per Share Amounts)
Three Months Ended
Nine Months Ended
Cost of revenue
Research and development
Sales and marketing
General and administrative
Total operating expenses
Income before income taxes
The company has recorded a rise in the earnings per share from 0.61 in FY 2012 to 0.72 in FY 2013. This is likely to rise higher in the subsequent years as the industry is potentially placed at an increasing growth rate. The shareholders will therefore continue to earn increased earnings on their investments in the firm. This is in addition to the cash dividends, payable to the shareholders at the end of the financial year.
The balance sheet indicates the actual financial position of Microsoft in two instances in the FY 2012 and FY 2013 in terms of the value of assets and liabilities. Microsoft has recorded a net increase in the total assets from $85,084 in FY 2012 to $93,524 in the first quarter of FY 2013. This has been from the increased infrastructural investments. The increase in the liabilities of Microsoft also increased from $121,271 in FY 2012 to $134,105 in FY 2013. This is an indication of the firm's leverage, which is maintained at a secure lever that does not jeopardize the company's financial structure.
Balance Sheets (in Millions)
Cash and cash equivalents
Short-term investments (including securities loaned of $493 and $785)
Total cash, cash equivalents, and short-term investments
Accounts receivable, net of allowance for doubtful accounts of $267 and $389
Deferred income taxes
Total current assets
Property and equipment, net of accumulated depreciation of $12,247 and $10,962
Equity and other investments
Intangible assets, net
Other long-term assets
Liabilities and stockholders' equity
Current portion of long-term debt
Short-term unearned revenue
Securities lending payable
Total current liabilities
Long-term unearned revenue
Deferred income taxes
Other long-term liabilities
Commitments and contingencies
Common stock and paid-in capital - shares authorized 24,000; outstanding 8,349 and 8,381
Retained earnings (deficit)
Accumulated other comprehensive income
Total stockholders' equity
Total liabilities and stockholders' equity
Microsoft is one of the few companies in the computer software industry that has maintained a steady growth and profitability over a long period of time. The recent move to acquire possible competitors in the industry is a sure move to reduce competition and expand its operations all over the globe. As the leading firm in the industry, many firms emulate its moves and tactics in a bid to remain competitive in the market. The company is therefore a sure return investment for an investor, with minimal risks involved and a promising future based on the previous performance trends.