Microsoft Corporation (MSFT) Company Report

Microsoft Incorporation is an American multinational company dealing in software development and programming headquartered in Redmond, Washington, USA. The company codes software, issue software licenses and manufacture electronic products such as mobile phones and personal computers. As of 2018, the firm ranked sixth in revenue among world’s largest technology information companies (Aiello).  The company offers a wide range of products and services, and most notably, it is a major developer of the Microsoft Windows operating system.  Microsoft corporation software includes operating systems and internet browsers. Its hardware products are mobile phones and gaming consoles.


The company has survived in the technology industry for decades, a sign of innovation and resilience through a dynamic business environment (Day). Microsoft has defined industry standards for software technologies and it will be a crucial player in the future of this sector as it has adopted an innovative approach, which is the most effective business model in the telecoms industry.

Part One

Microsoft emerges as the first software company to venture into hardware manufacturing. The acquisition of Nokia was a major leap towards a new business strategy as it enabled the company to start manufacturing service devices.  Microsoft’s wide range of products offering spans across all continents with a significant market in the USA and Canada. The US and Canada combined make up to 44% of its market with the remaining 56% being the rest of the world (Day). While Microsoft has considered Canada and the US as a primary market for its products, it has recorded significant market penetration across Europe and Asia. More specifically, China recorded the fastest growth for demand of the company’s products and services in 2017 (Microsoft). Evidently, Microsoft continues to gain a significant control of global information technology business.

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Microsoft incorporation derives its revenues from the sale of hardware and software as well as licensing of software.  Microsoft has been primarily an operating system developer under its product offering. The personal computer operating system is its most successful product line that has enabled Microsoft dominant in this segment with over 70% of the market share (CSIMarkets). The company sells most of its operating software through hardware developers, but it retains the ownership of the operating system. In this way, CSIMarkets notes that the company’s approach towards revenue generation has been criticized for licensing hardware developers to pay licenses fees for using computer chips even when their operating system is not incorporated. To enlarge its market share, Microsoft is also venturing in the manufacturing of game consoles and smartphones as a new source of revenue generation (Aiello). The company also offers services ranging from maintenance of servers and telecommunication equipment and also selling software as a service (SAAS).  Consequently, the company’s keen interest in cloud computing has seen its market share soar within the past three years with a stunning 100 billion in revenue dollars within 2017 (Aiello). Under cloud computing, Microsoft offers its software as a service after which consumers pay to use the product.  Overall, Microsoft’s business strategy enables it to continue deriving revenues from diverse sources.

The primary customers for Microsoft are retail consumers. Over 50% of Microsoft product and service offering is intended for final consumer use, and they range from operating systems, gaming consoles, and smartphones (Microsoft). Conversely, firms are the second consumers of Microsoft products; this is a business to business relationship where its products are used to sustain other companies ranging from small to big institutions who use Microsoft to run and maintain their servers.  Within its primary and secondary customers, Microsoft boasts of positive consumer feedback. Generally, Microsoft consumers have been ranked as the most satisfied customers as compared to those of other technology companies (Novet).  Notwithstanding, the firm has been on continuous superiority wars with Linux; the most efficient server platform with a better cost to benefits ratio. Hence, by effectively utilizing consumer feedback, Microsoft can better its services to the differentiated customers.

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Technology companies have to acquire new technologies to remain relevant to the market dynamics. Microsoft business strategy uses acquisitions to buy technology companies to remain relevant (Bernal‐Conesa et al. 98). Within the last three years, the company has made a significant move towards purchasing multibillion businesses adding to its portfolio. Microsoft acquired Nokia in 2014 through a deal amounting $7.2 billion (Evans). Later, it acquired Mojang at a cost of 2.5 billion dollars and Hexadite at a cost of $100 million and later LinkedIn in 2016. As of 2018, Microsoft had sealed a significant deal for the acquisition of GitHub for a cost of 7.5 billion dollars. The GitHub purchase is still in process with expectations that Microsoft acquires full control of the business by the end of 2018. The new deals have diversified Microsoft’s product offering making it a smartphone producer after buying Nokia and GitHub is expected to deliver great synergy to the company (Day). By acquiring new companies and latest technologies, Microsoft’s synergies continue to increase improving its market competitiveness.

Microsoft operates in a diverse market. The firm faces competition across all its businesses with Google, Apple, and Amazon being the major competitors in its operating systems and cloud computing activities (CSIMarkets).  The Windows operating system segment faces competition from Apple’s Mac-Os and Google’s Android operating system. Undeniably, Microsoft has suffered significant challenges owing to competitors’ strategy of distributing preinstalled application software in electronic devices. Microsoft, however, has maintained offering highly flexible software with extensive compatibility. Conversely, Microsoft’s gaming console, Xbox, faces competition from Nintendo and Sony electronics (CSIMarkets).  Hence, despite diversifying its products, Microsoft’s penetration in the operating systems and cloud computing segments has remained small due to stiff competition.

Microsoft’s smartphone manufacturing faces competition from major technology giants, especially Samsung and Apple. The major players in mobile phones production have started to adopt vertical integration approach through offering their pre-installed UNIX software in their products. Most notably, Hewlett Packard and Oracle have taken this approach towards their system management options. However, the company has been optimistic that its low price points and software flexibility will be a key market driver for its phones (Microsoft).  Overall, in this segment, the corporation faces competition from IBM, Oracle, 3AP, CA technologies, VMware, HP, and BMC.

Part Two

Microsoft performance within the past three years has stagnated. The company’s revenue trend has remained sluggish despite some of its businesses like cloud computing posting very optimistic results.   Microsoft’s income has remained within the $85 billion to $93 billion bracket since 2015.  While it posted record high revenue at $93.58 billion in 2015, the 2016 revenues declined to $85.32 billion before revamping to $89.9 billion in the 2017 financial year.  Conversely, Microsoft’s assets have been accruing over the years, which is witnessed by the growth of $174.3 billion in assets in 2015 to $193.4 billion in 2016 and then to $241.08 billion in 2017 (Microsoft).  Overall, the company’s growth is commendable despite fluctuating revenue in the past three years.

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Microsoft has posted varied results in the profitability aspects. Microsoft’s stockholder’s equity has declined from $80.08 billion in 2015 to $72.39 billion in 2017. The trend signals a reduction in share capital indicating that the company has retained earnings towards increasing the business’s cash flow (fig. 1).  Contrary, the firm has also posted increasing net income in the past three years such that it has grown from $12.19 billion in 2015 to $16.79 billion in 2016 and then to $21.20 billion in 2017.  The impressive performance of net income is reflected by increasing cash dividends declared per share.  Microsoft posted pay per share of $1.24 in 2015, $1.44 in 2016 and $1.56 in 2017. The rising dividends is a sign of the company’s profitability as well as an indication of better returns for shareholders investment (fig. 1). The positive trend is consistent with a positive investor sentiment towards Microsoft’s stock as evidenced by increasing returns over time.

Microsoft’s performance has exceeded SAP 500 and NASDAQ indices in the past three years indicating a commendable financial position. Microsoft Corporation’s stock has been on the lead signaling positive investors sentiments (fig. 3). The performance has contributed to the labeling of Microsoft as a blue-chip company. The firm has posted better results from its cloud computing investment, which can be attributed to the expanding market and huge investment in this line of business (Nieuwenhuis, et al. 311). Microsoft’s intelligent cloud has posted increasing revenues from $23.7 million in 2015 to $25.04 million in 2016 then to $27.4 million in 2017 (fig. 3). Contrary, personal computing has been on the decline signaling a loss of market share or decreasing profit margin from this segment. As Bernal‐Conesa et al. report, the success of a business in a highly technological environment depends on heavy investment in research and development (103). The fund allocation towards research and development for Microsoft is somewhat stagnant and it falls within the 13% to 14% bracket of the company’s revenue in the past three years (fig. 4). Hence, innovation and research and development significantly impact Microsoft’s performance.

Part Three

Microsoft business prospects are indicated by the financial performance and the business strategy adopted. The company’s financial and strategic performance indicate that it is in a healthy business position. The financial records show that within the past three years, Microsoft has not reduced the shareholder value. New acquisitions and investment into cloud computing are the most significant strategies geared toward growing Microsoft’s portfolio and performance.  Rosca et al. state that cloud computing is the next big frontier for selling software as a service (134).  This new focus is indicative of Microsoft’s organizational culture to innovate and venture into a new frontier (CSIMarkets).  As indicated in the financial statements, the cloud computing business for Microsoft is profitable exceeding estimates and presenting a new dimension for product and service offering. The cloud computing market has a high potential as evidenced by a similar positive financial performance by Amazon and IBM.  Overall, Microsoft’s next big business is likely to be in cloud computing as operations dynamics shift in technology companies.

Microsoft’s approach to acquisitions is highly optimistic.  Worth noting is the high investments the company has made towards acquiring new businesses that have high synergies. Mergers and acquisitions is a highly reliable approach for acquiring market power, while, at the same, to derive synergies in different ways (Tigre and Rocha 103). For instance, Microsoft acquisition of GitHub is expected to provide the firm with a potential client’s database and platform to sell their products. In such a way, the company can influence the market with over 28 million source code developers. Additionally, acquiring Mojang will help Microsoft to gain a significant market in gaming software development. Furthermore, the purchase of Nokia increases Microsoft’s hardware business while growing its operating system software market in smartphones (Day). Evidently, an effective investment strategy should prioritize when to acquire new companies and when to reinvest within the parent business.

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Microsoft business in operating systems software is under threat, especially due to the penetration of Android and Chrome operating systems. Google’s entry into the operating system market has been widely accepted across the globe with major smartphone manufacturers, such as Nokia and Techno adopting its software (Day). Despite the firm attempting to counter the effects of high competition by running the Scroogled campaign, Google’s approach to the operating system software market has been more successful (Aiello). Additionally, Apple’s continued growth has increased Mac-OS’s presence presenting further threats to Microsoft.  Hence, it is vital that Microsoft continues improving its strategy in the operating system software segment to remain competitive.

Microsoft investment in hardware business bears little potential for the business.  The acquisition of Nokia led to 7.5 billion in losses reaffirming stiff competition from Apple, Samsung, and Chinese phone manufacturers. Still, Microsoft has a competitive edge by having its operating system run on its Nokia manufactured phones. Moreover, under Microsoft chief executive officer, Satya Nadella, investments into cloud computing as evidenced with the LinkedIn acquisition to connect millions of people to Azure through its 42 regions signals Microsoft unaltered business perspective (Day). Hence, although Microsoft may not regard hardware manufacturing as one of its core business, it is still strategic for the firm to be in manufacturing business.

A critical evaluation of the performance of Microsoft indicates that innovation and resilience have played a key role in its survivability. It is evident that Microsoft has defined industry standards for software technologies and will be a key player in new technologies such as cloud computing under its innovative approach. The technology business is a highly dynamic industry where business must seek to remain relevant or risk being redundant.  Microsoft has gone against odds by striving to be a technological giant to reckon in this dynamic industry.  Most certainly, Microsoft business diversification and acquisitions signal its commitment to be relevant over time, which is evidenced by its investment in cloud computing; anew business dimension that is going to disrupt the software industry. In such a way, Microsoft has exemplified a high level of business awareness to explore new frontiers and to define tomorrow through its business strategy. A focus on creativity by Microsoft shows that innovation is deeply rooted in its organizational culture, hence, investors can be confident that the firm is a technological giant and a worth investing in since it has consistently improved shareholder value emerging as a blue chip company.

Works Cited

Aiello, Chloe. “Cloud Stocks Are Soaring As Microsoft and Salesforce Show They’re Willing to Spend – Here’s Why.” CNBC, 20 June. 2018, www.cnbc.com/2018/05/29/cloud-stocks-soar-in-2018-as-microsoft-and-salesforce-pay-up.html. Accessed 22 Oct. 2018.

Bernal‐Conesa, Juan Andres, et al. “CSR Strategy in Technology Companies: Its Influence on Performance, Competitiveness, and Sustainability.” Corporate Social Responsibility and Environmental Management, vol. 24, no. 2, 2017, pp. 96-107.

CSIMarkets. MSFT Sales Vs. Its Competitors Q2 2018, 2018, csimarket.com/stocks/compet_glance.php?code=MSFT. Accessed 22 Oct. 2018.

Day, Matt. “Fierce Competitors Amazon, Microsoft Find Some Common Ground with Alexa-Cortana Partnership.” The Seattle Times, 30 Aug. 2017, www.seattletimes.com/business/amazon/fierce-competitors-amazon-microsoft-find-some-common-ground/. Accessed 22 Oct. 2018.

Evans, Bob. “Microsoft on Track to Hit $7 Billion in Quarterly Cloud Revenue, Amazon $6 Billion.” Forbes, 11 July. 2018, www.forbes.com/sites/bobevans1/2018/07/11/microsoft-on-track-to-hit-7-billion-in-quarterly-cloud-revenue-amazon-6-billion/#4e8085ac5152. Accessed 22 Oct. 2018.

Microsoft. “Microsoft 2017 Annual Report.”  2018, www.microsoft.com/investor/reports/ar17/index.html. Accessed 22 Oct. 2018.

Nieuwenhuis, Lambert JM, et al. “The Shift to Cloud Computing: The Impact of Disruptive Technology on the Enterprise Software Business Ecosystem.” Technological Forecasting and Social Change, vol. 129, no., 2018, pp. 308-313.

Novet, Jordan. “As Microsoft Gains Cloud Share, Competitors are Changing Their Stance.” CNBC, 20 July. 2018, www.cnbc.com/2018/07/29/microsoft-gains-cloud-share-amazon-google-hybrid-cloud.html. Accessed 22 Oct. 2018.

Rosca, Eugenia et al. “Business Models for Sustainable Innovation – An Empirical Analysis of Frugal Products and Services.” Journal of Cleaner Production, vol. 162, no., 2017 pp. 133-145.

Tigre, Paulo Bastos, and Leonardo M., Rocha. “5 Innovation, State Partnership and Growth Strategies in the Software Industry.” Brazil’s Economy: An Institutional and Sectoral Approach. Routledge, 2017, pp. 103.

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