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  • Microsoft, A Company Evolving 0 comments
    Jul 15, 2014 4:36 PM | about stocks: MSFT, GOOG, GOOGL, AAPL

    Summary

    • The Future of Cloud
    • Mobile moving forward
    • What do layoffs mean?

    The Future of Cloud

    Azure is slowly but surely becoming a solid alternative to AWS, growing in market share quarter after quarter. I expect Azure to really gain on AWS in the next year or two. They have been adding a great number of features and will soon be a much more rich ecosystem then AWS. AWS has been acting as the only major player for a few years and got a huge lead on Microsoft, Google and others. Microsoft, in the these early days has separated from the pact and shown to be the best legitimate contender to AWS.

    Office 365 has been growing it's subscriptions fairly quickly over the last 6 quarters and is poised to keep growing. Though this will likely cannibalize License sales of Office this is still great news. A lot of large companies purchase licenses but don't upgrade when a new version comes out. If a company pays $300 for a new license every 4-6 years it works out to about $75-$50 p/y. With the new subscription model MSFT charges $100 p/y and the customer always has the latest version.

    Mobile moving forward

    Microsoft now has a vast amount of devices it is now selling from Xbox to Tablets to Smartphones. Xbox is now a well developed brand that has been around for over a decade and is a leader in the gaming market. It is a great way for them to get into the peoples homes. Arguably Microsoft's greatest innovation is the Kinect, which nobody seems to want. Now that it is no longer bundled with the Xbox I believe they will see better sales with a comparable price to the PS4.

    The Surface is an interesting tablet, I have not used any of them but own a Samsung tablet with Windows 8.1. I love the device because I can connect it to a monitor and it's a PC or carry it around as tablet. The device is great but it's a major change for people. I believe that has been the biggest issue for people. The Surface Pro 3 seems like an amazing device and I think it would be perfect for business. Unfortunately it's only cost effective for people who use a computer and a tablet for work. Though MSFT really doesn't have to sell more SP3's then Apple sells iPad's to be relevant. For the most part they just need to sell enough Licenses for tablets to be relevant in the tablet market.

    There market share seems to be stagnant though I question how their market share is calculated. I wonder how someone can tell whether their OS is being run on a PC, Ultrabook or tablet when they all run the same OS.

    Then there is Nokia, the handset division Nadella didn't want but has to live with anyways. I think it was necessary for MSFT to buy Nokia's handset division. The deal the two companies had for Nokia to only make Windows phones was due to end February 2014. At anytime after that they could have stopped producing Windows phones. Nokia was making 90% of all Windows phone devices. if Nokia were to stop producing the phone then Windows phone would essentially become non existent, more then it already is.

    All these devices allows MSFT to develop solid products to showcase their software. They just need to find a way to break even with their devices division. Pushing their other services is the reason they are selling devices.

    What do the layoffs mean?

    A lot of people will be saying things about the upcoming layoffs MSFT is going to be announcing soon as the first step to Microsoft's decline. This simply isn't true. With the purchase of Nokia's handset division there are now a lot of redundant and overlapping jobs that are no longer needed. They need to trim the fat right now.

    Conclusion

    Microsoft will never be Apple, nor should they be. Microsoft is a software company that sells devices while Apple is a devices company that make software. Microsoft needs to showcase their products and push their services by developing products in partnership with their OEM's. Cloud computing is the real future for Microsoft and that is where the real growth will happen. Mobile is just a platform for them to push their Cloud services. Laying off unnecessary employees will help trim Microsoft into a leaner, hard to call 100,000 employees lean, company.

    Disclosure: The author is long MSFT.

    Stocks: MSFT, GOOG, GOOGL, AAPL
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