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Company Profile - Microsoft Corporation - Q3 2015

07 Jul 2015 Glo bal IT/Co mpute rs Micro so ft

S WO T ANAL Y S IS

Strengths Leading global vendor in operating s ys tem, produc tivity s oftware and s erver markets .
Launc h of Windows 8 has widened Mic ros oft's pres enc e into new devic e c ategories .
Strong grip on the des ktop applic ation market, with Mic ros oft Offic e holding more than 90% of the offic e s oftware market.

Weaknesses Mic ros oft has rec eived c ritic is m in the pas t for problems with antic ompetitive prac tic es , s tability, s ec urity and c ompatibility.
Late entrant to the s martphone OS market s ees it lag behind rivals Apple and Google.

Opportunities Launc h of Windows 8 and Windows Phone 8 pos itions Mic ros oft to benefit from popularity of touc hs c reen devic es inc luding
s martphones , tablets and hybrid c omputers .
Skype integration with enterpris e and c ons umer produc ts and s ervic es offers growth potential.
Launc h of Xbox One in Q413 will inc reas e pres enc e in c ons umer's front-rooms , a new battleground for c ons umer elec tronic s
c ompanies .
Cloud s ervic es s eeing s trong growth in the bus ines s market and uptake of c ons umer c loud s ervic es als o inc reas ing.
Interc onnec tivity between Mic ros oft's many different produc ts and s ervic es will allow the c ompany to c apitalis e s trongly on its
s ubs tantial inves tment in c loud c omputing..

Threats A weaker ec onomic environment will res ult in the delay of purc has es and upgrades to Windows and Offic e applic ations .
Ris ing popularity of tablets and s martphones running Apple's iOS and Google's Android as alternatives to notebooks will s queeze
Windows devic e s ales .
Multiple rivals in the c loud market, both in public c loud provis ion and SaaS, whic h c ould limit growth and s queeze bus ines s s oftware
s ales .
Pirac y c ontinues to be a drag on revenue from s oftware s ales inc luding Windows and the Offic e s uite.

This mate rial is pro te cte d by inte rnatio nal co pyright laws, and use o f this is subje ct to o ur Te rms & Co nditio ns.
© 2015 Busine ss Mo nito r Inte rnatio nal Ltd

Windows Embedded devic e platforms and Enterpris e Servic es . and c ons umer revenue. Around 50% of this s egment's revenue c omes from multi-year volume lic ens ing agreements . It als o c overs developer tools . Exc hange. Online Services Division (OSD): The OSD develops and markets information and c ontent des igned to help s implify tas ks and improve utility of online s ervic es . Online Servic es Divis ion. whic h ac c ounts for nearly 100% of OSD's annual revenue. It als o inc ludes Mediaroom IPTV s oftware. Mic ros oft has als o launc hed its own tablet hardware. and use o f this is subje ct to o ur Te rms & Co nditio ns. Windows Azure. lic enc es and s upports a wide range of c omputing s ervic es . Server and Tools . whic h inc ludes revenue from retail pac kaged produc t s ales and OEM revenue. Xbox 360 video games . Mic ros oft Bus ines s Divis ion. as well as providing us ers ac c es s to Offic e applic ations on up to five devic es . Produc ts and s ervic es under this divis ion inc lude Windows Server. In February 2013 Mic ros oft c los ed its hotmail s ervic e. It als o c reated Mic ros oft Offic e. Server And Tools: This area develops and markets tec hnology and related s ervic es . Entertainment And Devices Division (EDD): This area foc us es on the development and marketing of entertainment and c onnec tivity s ervic es . In Q2 FY2013. Lync and Offic e 365). The other 10% c ompris es Mic ros oft Dynamic s bus ines s s olutions . it bec ame Overview the dominant player in the home c omputer market in the 1980s through its MS-DOS operating s ys tem. It als o helps advertis ers c onnec t with their target audienc es . generated through volume lic ens ing agreements and Mic ros oft Dynamic s revenue. the Surfac e. This was s uc c eeded by Mic ros oft Windows . This mate rial is pro te cte d by inte rnatio nal co pyright laws. whic h inc ludes Mic ros oft Offic e s ys tem revenue. MBD offerings inc lude Mic ros oft Offic e (c ompris ing mainly SharePoint. Skype and Windows Phone. s oftware and s ervic es through Windows Live and Mic ros oft PC hardware produc ts . OSD produc ts inc lude Bing. The Outlook s ervic e is powered by the SkyDrive c loud s ervic e and Mic ros oft c laims it to be the fas tes t growing email s ervic e in the world by us ers . Windows and Windows Live Division: Windows and Windows Live Divis ion develops and markets PC operating s ys tems . manufac tures . Offic e 365 will be available in 89 markets and 33 languages by mid-2013. whic h is available either as an RT or Pro vers ion. moving ac c ounts over to Outlook email s ervic e. training and c ertific ation. and PC hardware produc ts . Xbox LIVE. 30% is purc has ed through trans ac tional volume lic ens ing programmes . Kinec t. In February 2013 Mic ros oft announc ed the worldwide availability of Mic ros oft Offic e 365 s ervic es for bus ines s (launc hed in mid-2011). The Windows Divis ion c ons is ts of multiple editions of the Windows operating s ys tem. with the aim to improve produc tivity and effic ienc y. The Pro was only launc hed in February 2013 and runs Windows 8 Pro and is able to run all Windows 8 applic ations . and Entertainment and Devic es Divis ion. Sys tem Centre produc ts . In Q2 FY13. organis ations and on a pers onal level. Bing and MSN generate revenue through the s ale of s earc h and dis play advertis ing. EDD produc ts inc lude the Xbox 360 (whic h inc ludes gaming and entertainment c ons oles . This divis ion foc us es on s oftware. Skype regis tered 200mn us ers . Founded in 1975. adCenter and advertis er tools . Mic ros oft SQL Server. whic h generates more than 90% of MBD revenue. and the remainder c omes from Enterpris e Servic es . Company Mic ros oft Corporation develops . Windows Phone 8 was launc hed with a broad range of c arriers and devic es inc luding thos e from Nokia.9mn c ons oles s old as Xbox 360 c ontinued to be top s elling games c ons ole in the US. Sams ung and HTC. Mic ros oft ac quired Skype on Oc tober 13 2011. related s oftware and online s ervic es . Microsoft Business Division (MBD): This divis ion is the development and marketing arm for s oftware and online s ervic es des igned to inc reas e produc tivity in teams . Mic ros oft Exc hange Online and Mic ros oft SharePoint Online. Xbox live s ubs c ribers c ame to over 40mn and the Kinec t reac hed an ins talled bas e of 18mn units . Enterpris e Servic es c ompris e Premier produc t s upport s ervic es and Mic ros oft Cons ulting Servic es . hardware and s ervic es des igned to improve effic ienc y through extended brows ing c apabilities and operations ac ros s the us er's hardware and s oftware. Mic ros oft reported that SME s ubs c riptions to Offic e 365 inc reas ed 150% in 2012. and ac c es s ories ). MSN. Mic ros oft is divided into five produc t divis ions : Windows & Windows Live Divis ion. the dominant player in the Offic e s oftware s uite. Revenues are divided into bus ines s revenue. retail pac kaged produc t and lic enc es s old to original equipment manufac turers (OEMs ). Vis ual Studio. © 2015 Busine ss Mo nito r Inte rnatio nal Ltd . The 365 s uite inc ludes and updated Mic ros oft Lync Online. the EDD rec orded 5.

This mate rial is pro te cte d by inte rnatio nal co pyright laws. this led to numerous legal wrangles . the c ompany launc hed its Azure Servic es Platform. but with s upport for XP withdrawn from 2014 and an inc reas ing range of touc h devic es available uptake is expec ted to ac c elerate through 2013 and 2014. IBM awarded a c ontrac t to Mic ros oft to provide a vers ion of the s ys tem to be us ed in the upc oming IBM Pers onal Computer. the c ompany releas ed Mic ros oft Windows . The devic e initially launc hed in Angola. While IBM rebranded the s ys tem PC-DOS. whic h boas ts long battery life and will be preloaded with loc al c ontent. and Mic ros oft will have to adapt its s trategy. Singapore. Mic ros oft is looking to c apitalis e on Windows Phone 8's s trength in performing on mid-s pec devic es . The c ompany was forc ed to produc e new vers ions of Windows XP without Windows Media Player. Tandy and Altos . whic h s et Mic ros oft as a pioneer in the internet era. New Zealand. The c ompany moved into the video games market in 2001 with the releas e of the Xbox. the c ompany expanded into c omputer networking and online s ervic es . Windows XP Home Edition N and Windows XP Profes s ional N. Nigeria and South Afric a in Marc h 2013. Mic ros oft retained owners hip of the MS-DOS s ys tem. Bill Gates s tepped down as c hief s oftware arc hitec t in 2008. The new OS has als o s purred devic e innovation. providing a c hallenger to Sony and Nintendo in that market. Windows Phone: The Windows Phone was releas ed in Europe. it foc us ed on reforming its operating s ys tem for mobile telephony. while it lac ks expos ure to the fas t growing tablet and s martphone markets . Company Mic ros oft was offic ially es tablis hed on April 4 1975 by Paul Allen and Bill Gates . as they hoped new leaders hip would be more likely to guide Mic ros oft to its 'pos t-PC' future. Mic ros oft's s hift towards s oftware-as -a-s ervic e (SaaS) is enabling applic ations and s ervic es that his toric ally have been s eparate to bec ome more integrated. the c ompany launc hed the Mic ros oft Offic e s uite. © 2015 Busine ss Mo nito r Inte rnatio nal Ltd . Mic ros oft announc ed its ac quis ition of Nokia's hands ets divis ion. online s ervic e MSN and the web brows er Internet Explorer. as Mic ros oft was ac c us ed of antic ompetitive prac tic es . with the s hare pric e jumping 7%. named Windows Phone OS. Windows Phone 8 was launc hed in Q2 FY13.64bn. They lic ens ed this to hardware manufac turers s uc h as Intel. making it eas ier for applic ation developers to leverage Nokia's global s c ale while Nokia's applic ation and c ontent s tore would be integrated into Mic ros oft Marketplac e. or USD8. Moroc c o. and use o f this is subje ct to o ur Te rms & Co nditio ns. the legal wrangles c ontinued and the c ompany was fined an additional EUR899mn for lac k of c omplianc e with the 2004 ruling. In November 1980. and refined its s trategy for entering the s martphone indus try. as well as touc h func tionality. whic h made 12. Egypt. Early reports s ugges t uptake of the new OS has been s lower than with previous launc hes of Windows 8. c ameras . In Marc h 2004. onc e a c as h c ow. Mic ros oft and Nokia formed a s trategic partners hip in February 2011 to build a global mobile ec os ys tem bas ed on c omplementary as s ets . Kenya. whic h joined Windows as being a dominant player in its field. introduc ing a new us er interfac e inc luding 'live tiles '. In 1986. Windows Vis ta and Mic ros oft 2007 were releas ed in January 2007. it was the DOS s ys tem that proved the key to Mic ros oft's s uc c es s . Aus tralia. In 1990. its firs t foray into the c loud c omputing market. In 1984. However. Over the medium term there is potential for thes e hybrids to impac t tablet and notebooks s ales by offering the Offic e produc tivity s oftware alongs ide the media c ons umption s trength of tablets . whic h led to a rec ord profit for Mic ros oft in that year. the c ompany was involved in an antitrus t c as e agains t the EU whic h res ulted in Mic ros oft paying EUR497mn for abus e of market dominanc e. but entered the operating s ys tem bus ines s in 1980 with a History vers ion of Unix. This year s aw the releas e of Windows 95. Cloud Computing And Interconnectivity: In April 2011. widely c ons idered a failure under Ballmer's s tewards hip. Windows Live and Windows Phone OS. Mic ros oft would provide developer tools . Steve Ballmer. of its res earc h and development (R&D) budget on developing c loud c omputing s ervic es . working to c onnec t PCs . although c ontinues to hold pos itions within the c ompany until today. Mic ros oft announc ed it was to s pend 90%. a graphic al extens ion for MS-DOS. On September 3. the US. and it s oon bec ame the leading PC OS vendor. but BMI believes there are s everal reas ons for optimis m about Mic ros oft's future. However. The initiative inc ludes the c reation partners hips to promote loc ally s pec ific c ontent as well as hands ets that are tailored for Afric an markets inc luding Huawei's W1. Strategy The announc ement that Mic ros oft CEO. Ivory Coas t. As the internet began to gain popularity in 1995. with a range of vendors experimenting with hybrid form fac tors that bring together the popular mobility of tablets with the broader func tionality notebooks . The outlook for the Windows divis ion.000 Mic ros oft employees ins tant millionaires . Windows 8: Windows 8 was launc hed in Oc tober 2012. In 2010. is now highly unc ertain. However. In 2008. Canada and Mexic o in H210 and in As ia in H111. As well as targeting devic es at the developed s martphone markets Mic ros oft announc ed the 4Afrika initiative in February 2013 as part of a pus h into emerging markets . with flags hip devic es from Nokia's Lumia range. the c ompany launc hed an IPO. was s tepping down within the a year was greeted pos itively by inves tors . c alled Xenix. game c ons oles and video and mus ic players through c lient s oftware and high-s peed internet s ervic es us ing a c ombination of Windows . phones . Sentiment had bec ome more bearis h as Mic ros oft fac es a s erious c hallenge from dec lining des ktop and notebook s ales .

with revenue up 14. this inc ludes the launc h of Windows 8 in Oc tober Performance 2012. and with both divis ions growing fas t there is reas on for optimis m about s hort. This is a c onc ern for Mic ros oft bec aus e Windows has been the s ec ond larges t c ontributor to group operating profit in rec ent years .2% y-o-y in Q413.763bn Operating Profit (FY13): USD26.9mn Xbox 360 Cons oles Sold (H1 FY15): 6. with revenue inc reas ing in all five divis ions .1%.764bn Operating Profit (FY14): USD27.8% for FY2013 as a whole.7% y-o-y to Q4. The s ales boos t from the new OS was s ignific antly les s than for Windows 7.723bn Revenue (FY13): USD77.833bn Revenue (H1 FY15): USD49. By end-2013 this figure has fallen to 49. The Server and Tools als o outpac ed growth in the Windows divis ion.15bn Net Inc ome (FY12): USD16. Mic ros oft rec ently reported operating res ults for Q4 FY13.671 Operating Profit (FY11): USD27.896bn in the three months to the end of June. This is in c ontras t to the launc h of Windows 7 that res ulted in a muc h larger s pike in revenue.978bn Net Inc ome (FY13): USD21.074bn Net Inc ome (H1 FY15): USD10.759bn Operating Profit (H1 FY15): USD13.62bn Net Inc ome (FY11): USD23. Financial Data Revenue (FY11): USD69. Its mos t rec ent financ ial Financial res ults s how revenue for the Windows Divis ion was up 6.849bn Revenue (FY14): USD86. Server and Tools operating profit inc reas ed 14.1% y-o-y to Q4. while bus ines s operating profit jumped 18.9% and 62.0mn Xbox 360 Cons oles Sold (FY13): 9. Further. operating profit for the Windows Divis ion was down 54. deepening its s tatus as Mic ros oft's larges t revenue generator. The Bus ines s Divis ion grew the fas tes t. whic h s howed a y-o-y revenue inc reas e of 10.1% over the s ame period as the operating margin in Mic ros oft's two larges t divis ions inc reas ed. However.2% to USD19.863bn Net Inc ome (FY14): USD22. Furthermore. c ementing its pos ition as the s ec ond larges t revenue generating divis ion. and use o f this is subje ct to o ur Te rms & Co nditio ns.403bn Employees (2011): 90.6mn Skype Monthly Connec ted Us ers (FY12): more than 250mn Skype Monthly Connec ted Us ers (Q1 FY13): more than 280mn Skype Monthly Connec ted Us ers (Q2 FY13): more than 300mn Skype Minutes of Calls (FY12): 377bn Skype Minutes of Calls (Q1 FY13): 120bn Skype Minutes of Calls (Q2 FY13): 138bn This mate rial is pro te cte d by inte rnatio nal co pyright laws. and down 17.5mn Data Xbox 360 Cons oles Sold (FY12): 13.9%.to medium-term financ ial performanc e.4% as the weight of s ales and marketing expens es dragged down profitability due to only modes t revenue growth. Recent The dec line in des ktop and notebook s hipments has hit Mic ros oft's s ales of its Windows operating s ys tem.943bn Revenue (FY12): USD73. © 2015 Busine ss Mo nito r Inte rnatio nal Ltd .000 Operational Xbox 360 Cons oles Sold (FY11): 13.9% of group revenue in Q4 FY13. and margins had remained relatively s table 2009 to 2012 between 66. Taken together Bus ines s and Server and Tools ac c ounted for 63. reflec ting the dec lining s ales of des ktops and notebooks .161bn Operating Profit (FY12): USD21.

© 2015 Busine ss Mo nito r Inte rnatio nal Ltd .c om This mate rial is pro te cte d by inte rnatio nal co pyright laws. and use o f this is subje ct to o ur Te rms & Co nditio ns. Company Mic ros oft Corporation Details One Mic ros oft Way Redmond Was hington United States WA 98052 Tel: 4858828080 www.mic ros oft.