FundamentalsWritten by Ophir Gottlieb, 10-12-2015
There's simply no more doubting it, Microsoft has abruptly woken up and turned into an attacking, innovating, cash generating, radical technology machine with substantial growth potential. Microsoft is fulfilling CEO Satya Nadella's goal of going platform-agnostic. The company is now on the attack and for the first time in a long time, feels dangerously competitive and innovative.
In fact, Microsoft spent more on Research & Development (R&D) than every company in the world in every sector last quarter. Here's an image which plots every mega cap of any industry equal spaced, and with R&D on the y-axis.
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Attacking Google on Android
With an investment in Cyanogen, which creates its own flavor of Android, MSFT has taken a step to reap rewards from the Android chaos. While Google created the OS, it doesn't control much of the innovation built on top of it. Such is the risk of an open source operating system.
In late May of 2015, Microsoft announced that it had created partnerships with nearly two dozen Android OEMs to install, Microsoft Office, OneDrive and Skype onto their Android powered tablets. Microsoft is looking to generate more revenue per Android device sold than Google.
Here's a chart of Microsoft's revenue over the last sixteen years:
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Attacking Google on Search
With Surface, Surface Pro and Surface Book, Bing is all of a sudden relevant again. Satya Nadella said Bing would turn its first ever profit in 2016 in the most recent earnings call by gently weaving people into usage from the Win 10 echosystem.
Windows 10, Surface and Surface Book
Microsoft approached Win 10 in a totally different way than ever before. The company is giving it away on mobile devices, and free upgrades to those with Windows 7 or Windows 8. Windows 10 is Microsoft's ecosystem, just as iOS is for Apple (AAPL) and Android (and search) is for Google (GOOGL). Perhaps the single most promising evidence of a true pivot for MSFT was heard from Chief Marketing Officer Chris Capossela said at the company's Convergence conference in March:
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Microsoft just announced its first ever laptop called Surface Book. The device is consistent with Microsoft's 'hybrid device strategy', the display can disconnect from the keyboard base to become a tablet. But this is definitely a laptop first, tablet second -- no kickstand, it sits in your lap. And this machine is a rip roaring technology marvel. I'll skip the techy specs (which are bonkers), but how's this for the end-all-be-all statement made by Panos Panay, Microsoft's corporate vice president for Surface Computing:
And, yes, as Bill Gates has always wanted, it comes with a "Surface Pen." The device will begin shipping on Oct. 26. (Source: Technology Fox News).
The newest Surface Pro, which is the tablet / laptop hybrid, is larger than the older one but not wider. It's also lighter and thinner than Surface Pro 3. It too has the light pen and users can invoke Cortana (like Apple's Siri) with the pen pressed down. The device comes with up to 16GB of RAM.
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The Lumia 950/950 XL smartphones were announced on October 6th and are the first phones that come with Windows 10 mobile. You like more specs? Check this out:
The Lumia 950XL is larger than the iPhone 6 (and 6s).
Microsoft Cloud, Azure, Office 365 and SaaS
The firm recently announced over 15 million subscribers to Office 365 -- the clever subscription model to office. The company reported that 80% of the Fortune 500 are subscribed to Office 365 (Source: Business Insider).
And let us not forget business cloud computing which is on track for over $8 billion revenue this year. Commercial cloud revenue rose 88% year-over-year. The company, along with Amazon won a huge contract with the Federal Aviation Administration (Source: Business Insider). That single contract is reported to be worth up to $1 billion over the next ten-years.
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Combining all of Software as a Service (SaaS), Microsoft reported $24.5 billion in "off-balance sheet revenues," which is a fancy way of saying revenue that's under long-term contract but not yet booked. Yes, there is nearly $25 billion in guaranteed revenue not yet booked.
Julie Bort and Matt Weinberger of Business Insider write it best:
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Conclusion and Wearables
Microsoft has changed everything about its approach now selling software as a subscription service, creating its first ever laptop, tearing revenue away from Android powered devices, establishing itself firmly as the number two Cloud Computing player and innovating with smartphones and wearables (yes, the firm announced version two of its fitness-centric wearable, the Microsoft 'Band'). Microsoft is no longer asleep, it's awake, innovating, attacking and winning.
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