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Microsoft Corporation is engaged in the promotion and production of hardware and software services. Among its offerings are intelligent and phone computers, servers, and operating systems for computing devices. Internet ads, video games, software creation solutions, system and desktop management tools, business solution applications, productivity apps, and server applications for distributed computing systems are all available from Microsoft. Personal networking, intelligent cloud, enterprise operations, and competitiveness are all features of the operating system. In addition, information services, communication, cloud services in a portfolio of productivity and others products are some of the items that are found in the business and productivity processing segments. They comprise of Microsoft dynamics business solutions, office consumer and office commercial. Moreover, the intelligent cloud provides cloud services and hybrid server products. The intelligent cloud is responsible for enterprise services, cloud services, and server products. However, searching advertising, gaming, devices, and windows are components that form the personal computing segment. The company whose, headquarters are located in Redmond; WA was founded by Henry Gates William 111 in the year 1975.
How Microsoft makes money
More Personal Computing
The above segment deals with devices and windows licensing that characterize Xbox, phones, and surface. According to the results, there was a reduction in sales to 11.8billion dollars which accounted for five percent of the entire sales. However, nonpro revenue was up by five percent and pro revenue increased by six percent all of which accounted for five percent increase of the revenues of OEM windows.In Q2 2017, there was a reduction of surface revenue by two percent from 1.35 billion dollars in Q2 2016 to 1.32 in the later year. This was followed by surface book and surface pro 4 after the firm realized that Book 2 and Pro 5 did not perform the way they had expected them. Moreover, Nadella’s plan to concentrate on fewer devices and Microsoft employee cuts saw a reduction in the phone revenues by eighty-one percent. This was combined with advertising costs that increased by ten percent without factoring in the traffic acquisition costs. The increase in costs is associated with windows 10 and factors in tighter Bing integration of the firm’s products. Since many people were waiting for project scorpion, gaming revenues had to decline by three percent (Wadhwa).
This component is characterized by services and server products, which are in form of Azure, server, and windows, which grew in revenues by 6.9billion dollars, or an equivalent of eight percent. This was followed by cloud services and server products that grew by 12% with revenues from Azure accounting for 93%, which more than doubled over the year in terms of computing usage. Furthermore, it has been noted that over the last two-quarters, the annual run rate was less than the firm's commercial cloud business that accounted for 10 billion dollars.
Productivity and Business Processes
This is the last component that forms up Microsoft Corporation and it’s characterized by office and office three hundred sixty-five of consumer and commercial customers. These exhibited an increase to 7.4 billion dollars or an equivalent of ten percent. In quarters consistently, office 365 has increased its subscribers by less than one million. Later on, there was hitting of record of 24.9 million after another 0.9 million subscribers were added in the second quarter (Q2).Moreover, Office revenues increased by forty-seven percent after there was an increase of cloud services and commercial products by five percent. Hence, according to the traditional software business, the firm’s subscription stream continues to perform positively. During the period of December 8th, 2016, Microsoft added to its revenues 228 million dollars from the activities of LinkedIn which was acquired by Microsoft at a tune of 26.2 billion dollars. Although investors want to see Microsoft perform better in 2017 with a concentration on phones, Xbox products, and new surfaces, the above quarter was one of the strongest quarters in the history of Microsoft.
Latest quarterly sales pie chart
The above is the revenue pie chart that illustrates quarterly sales of the Microsoft Corporation, which have been collected between January 2017 and April 2017. From the above illustration, it is evident that Microsoft sales or revenue were highest in the second quarter with 24.09billions, followed by the third quarter with 22.09 and then least in the first quarter of 20.45billion dollars in the year 2017. The most recent revenues collected in the last quart show that there was a decrease of around 8.3 percent from 24.09 B to 22.09 B.
Latest quarterly net earnings pie chart
Quarterly one is represented with 4.69, followed by quarterly two with 5.2 and then quarterly three with 4.8. From 2017-Quartely two to 2017-Quartely three, there was a reduction of net income of Microsoft Corporation by 7.67 percent. Net income is reflected in the bottom line of the financial statements of the company. During the period of making financial statements, net profit is obtained after taxes, expenses and COGS are removed from the total income of the company. Moreover, net income is evaluated after a given period of time which may be quarterly or annually.
Microsoft earnings per share basic net
The above pie chart illustrates Microsoft earnings per share which moved from 0.6 in the first quarter, to 0.67 in the second quarter, and then finally to 0.62 in the third quarter. The latest quarter shows that there was a reduction in Microsoft earnings per share basic net.
During the second fiscal quarter of 2017, Microsoft reported earnings of 0.83 dollars per share, net income of 6.5billion dollars, and overall revenues of 26.1billion dollars. However, the case was different in the second quarter of 2016 where Microsoft had earnings per share of 0.78 per share, net income of 6.3 billion dollars, and overall revenue of 25.7billion dollars. According to stock market analysts, they had anticipated earnings per share to be 0.79 dollars and revenues of 25.3 billion dollars. This led to improvements in the last year’s quarterly results and beating the entire expectations of the corporation. Later on, the stock was flat in the after hours of trading due to the poor results that were posted by the firm, although in initial hours of the day the company’s stock was up by 0.93 percent in the regular trading. Moreover, there was paying of dividend during the quarter and share repurchases which were estimated at 6.5billion dollars awarded to the shareholders.According to Satya Nadella who is the Microsoft CEO, partnering with their customers with the help of digital transformation has helped in the creation of opportunity and adding of value which enhances the services being provided to drive growth in Microsoft cloud and acceleration of advancements in all services and platforms of the corporation. The earnings of Microsoft are categorized into three segments and this has been elaborated in the above paragraphs.
Microsoft’s Current Dividend Policy
The current dividend policy of Microsoft is categorized in form of 1.12 dollars given annually, twenty-eight cents per share given out quarterly and a 3.06 percent yield mark. On January 14th, 2017, Microsoft Corporation began an ex-dividend trading on the stock market. Moreover, on march 9th2017; there was a cash dividend payment of 0.39 dollars to shareholders who bought Microsoft shares before the date of payment. In terms of dividend payment, this was an increment of 8.33percent, which led to the changes in share price; from 64 dollars per share representing a decrease of -2.9percent up from 65.91dollars per share in 53-week high record compared to a 52-week low of 48.04 dollars per share represented as an increase of 33.24percent. Microsoft Corporation is comprised of companies like SAPSE and Oracle Corporation whose profitability is estimated to be around 2.12 with current earnings per share used as an indicator. Microsoft corporation was projected to grow at a rate of 6.41 percent in the year 2017 compared to that of the industry of 5.5percent according to zacks investment research.
When we talk about SWOT analysis, Microsoft Corporation is said to be responding to external and internal strategic factors. This concept is also known as a tool used for analyzing external strategic factors (opportunities and threats) affecting the business, internal strategic factors (weaknesses and strengths) of determining the organizational structure of Microsoft. More emphasis is put on business diversification, cyber security, and the importance of a unique product innovation when it comes to analysis of Microsoft production factors. It has also been noted that when the above factors are applied, the software market and long the long term growth of the computer hardware is achieved. Moreover, there must maintenance of effective responses to carter for the above factors that have been mentioned. According to researchers, the software business and computer hardware diversification are some of the Microsoft corporation rights that are necessary for achieving of innovation of its products. In addition, its operations can also extend beyond external and internal strategic factors.
Microsoft’s Strengths (Internal Strategic Factors)
The internal factors of SWOT analysis characterize resilience and business growth that are responsible for contributing to the analysis model. The continued success of Microsoft is based partly on factors like strong alliances with other firms, product alignment with positive externalities and dominant brand image. In the computer software and hardware market, Microsoft brand is considered as one of the strongest. This is in relation to reliability, which contributes to the company's capabilities to attract new customers. The reliability factor is also supported by the existing products in the market that Microsoft benefits from in form of positive externalities, for example, the company's windows operating systems, which have become popular and third party software developers that create programs for IBM PC that are compatible with the operating systems. Moreover, Microsoft’s capabilities to influence the market is also supported by its strong alliance with other firms like when an alliance is created by a company to use windows OS whose hardware products have been manufactured by Microsoft. Hence, in a global market, analysis of different factors of production is a sign that a company has the ability to compete against other strong players in the industry (.Bernroider562-573)
Microsoft Corporation’s Weaknesses (Internal Strategic Factors)
Internal strategic factors or organization weaknesses are ingredients that affect the growth of the business and are factored into the model of SWOT analysis of Microsoft. Hence, Microsoft managers must consider factors like lack of dominant computer hardware products, imitability of some products, and vulnerability to cyber crime when carrying out an evaluation. It has been noted that cyber crime is one of Microsoft’s threats for example globally; there might be countless cyber crimes that may target the windows operating system. These factors are considered threats because they slow down the purchases of Microsoft products by customers. In the computer software and hardware industry, cyber security is used as a form of competition among different players in the market. This is also combined with imitability of Microsoft products which reduces the brand strength of the products and it’s considered as a weakness during cost estimations. When it comes to dominant software and hardware products fronted by competitors in the market, there is a weakness of the company's product portfolio that is reflected in form of dependence on software products. Moreover, Microsoft needs to intensify, improve product features and its hardware development efforts to ensure competitiveness in the market.
Opportunities for Microsoft (External Strategic Factors)
When supporting business growth, this area of SWOT analysis is used in the concentration of strategic external factors and opportunities that affect Microsoft ‘technology business and these are; strong security against cybercrime, innovation for computer hardware products and business diversification. According to some scholars, windows operating systems popularity is one of the reasons why Microsoft Corporation is solely a software business. Hence, the firm has an obligation of making sure that diversification is used as a tool in growth, For instance, acquisition in the establishment of operations in new industries or markets and diversification through mergers or new business developments. In addition, it is up to the firm to utilize advantages of business growth, which are in form of increasing hardware sales or revenues after the innovation of computer hardware products has been carried out. Some researchers argue that comparing products from other firms in the computer hardware market, Microsoft’s products are not as competitive as those from their competitors.It’s from the above assertion that Microsoft has an obligation of improving the security features of their products and their product attractiveness. Hence, product improvement and diversification is crucial in an evaluation of Microsoft products.
Threats Facing Microsoft Corporation (External Strategic Factors)
External strategic factors or threats compromise or reduce the attractiveness of the company’s products are factored in the analysis model of the SWOT. The strategic factors of Microsoft must be able to eliminate threats, which are in form of computer software, and hardware business of the firm and these are strong competitive rivalry, privacy, and cybercrime. In businesses of computer technology, cyber crime remains as one of the major threats, for example, compromising of customers by cyber-attacks, which cripple the processes of Microsoft organizational structures. Microsoft Corporation also faces a problem of piracy, which is rampant in less developed states. This is followed by competitive rivalry, which is strong in the creation of threats that affect the development of Microsoft as the biggest player in the business. For instance, rising of popularity and reduction of company’s business after there is diversification of products by other businesses or other firms, hence improvement and product uniqueness is being displayed by Microsoft external strategic factors.
Any significant event(s) during the observation period
There was reporting of quarter earnings for the first calendar year of 2017 and companies that posted quarterly reports include; companies like Starbucks, Intel, Expedia, Microsoft, Amazon among others all of which revealed individual solid opportunities and broad implication on the share price of Microsoft corporation. The above posting of quarterly earnings reports had broader implications on the stock market because even companies that were not expected to perform well proved their point when they performed better, which led to overall changes in the share prices of the stocks despite the fact that there was no any new IPO.
Another event that took place at stock market was a reduction in revenues and earnings, which saw the trading of shares of Microsoft at a lower price in the market. The report about earnings and revenues was overlooked and was welcomed with unrealistic expectations. According to Nadella Satya, the cloud services showed robust growth despite the fact that the sales of hardware products were disappointing. Hence, some analysts argue that this appeared to be an opportunity more than a weakness in the stock market. Analysts argue that overall high-profile tech earnings looked good as the sector is continuing to grow despite being massive and this affected most of the stock prices at the stock market. However, according to historical results, investors should not hesitate to take up investment opportunities that are still available even if they might be diluted by the impressive size of the sector.
Latest Earnings Report (ER)
The latest quarterly financial earning report ofMicrosoft came out on April 27, 2017, and these are said to have reflected a reduction in revenues by twenty-five percent and beating of people’s expectations on the Wall Street. The firm experienced the lighter volume of its surface products and its share price fell after it reported that it experienced a reduction in revenues that those expected. Basing on what the Wall Street expected, the company posted the following results in its third fiscal quarter; according to Reuter’s consensus Thomson, EPS: seventy-three cents versus seventy expected, 23.56 billion dollars of revenue versus 23.62 billion dollars expected, 8.84 billion dollars versus 9.22 billion dollars of more personal computing expected. Furthermore, on the more personal computing of Microsoft, the firm recorded a decline of seven percent compared to what was recorded last year, which was associated with lower phone revenues according to the firm. There was also a 26% reduction of computers and line of tablets, which are also components of more personal computing. The stock of Microsoft was seen trading just slightly lower after it recovered its losses of the stock falling by 3% in the after-hours trading (Wang).
The fiscal fourth quarter of Microsoft’s outlook compared with forecasts by analysts.
According to street account consensus, revenues of intelligent ranged from7.2billion dollars to 7.4billions dollars versus the projected 7.22billion dollars, revenues of more personal computing ranged from 8.4billion dollars to 8.7 billion dollars versus the projected 8.92billion dollars. However, according to Surevest wealth management CEO Luna Robert, Microsoft shares hit a record price of 68.31 dollars per share on April 26. Despite the stock price of Microsoft reaching a record stock price of 68.31 dollars, Robert said he would not go ahead to sell his shares because the company is going through a lot of changes like Azure and cloud product which would impact on the long run price of the stock price. In addition, in the last quarter, Azure which competes with services of Amazon web almost doubled its revenue and this contributed to the overall sales growth of 93% which ended up affecting the price of Microsoft stock. Moreover, as the company transits away from a legacy business, growth in cloud revenue is seen as a key factor in the progress of Microsoft. In addition, after there was an announcement of revenue growth of 116%, the Microsoft stock price broke the record high of 1999 in October.
The Overall Change in the Stock Price
The overall changes in stock price saw Microsoft move from 65.4 per share or an equivalent of 1.8% to 68.46 dollars as of April 28, 2017, after the company posted second-quarter results that exceeded the expectations of Wall Street. Despite the fact that office business and traditional windows showed signs of struggling, Microsoft’s cloud computing business continued to post positive gains, which had an overall effect on the stock price of Microsoft.
If you could go back to January, would you buy any stocks of your company?
If someone is to go back to January, a recommendation to buy Microsoft stock would be crucial because of what the firm posted; for example the expected 0.9 dollars earnings per share versus the adjusted or obtained 0.84dollars with 25.8billion dollars in revenue.The above figures exclude results obtained from the recent acquired LinkedIn and deferral revenues from windows 10 exceeding Wall Street analysts' expectations with a figure of 25.28billion dollars. Moreover, between the periods of acquisitions and end of the quarter, LinkedIn contributed around two hundred twenty-eight million dollars revenue to the productivity unit in just 3 three weeks.
Would you recommend this stock to the class? Why or Why not
It would be good if the class went ahead to buy Microsoft stock because the firm has a 15yers history of paying dividends and it has been growing on a positive trend. In addition, the company seems to have eliminated the recent struggles it was facing and this led to good dividend stream, increase in revenues and earnings, all of which make the Microsoft stock price a good deal with its present market price on the stock market. Hence, buyers are advised to purchase shares before there is a rise in share prices.
In addition, there was posting of quarterly report two which was better by quarterly report one by Microsoft corporation on January 26th, 2017. The company’s expectations improved with improvements in revenues with a figure of 790million dollars combined with earnings of 0.04dollars.One of Microsoft segment cloud services experienced amidst single digit growth in revenues combined with impressive revenues from Azure, which almost doubled from the previous year.
The other topics that might be interesting
Other topics that might be interesting include assets that are held by the firm that is listed on the stock market. According to researchers, Microsoft Corporation almost has no assets but with obsolete computer code called windows and a few buildings, a bunch of software patents related to windows and a code for few windows dependent applications. However, when it comes to market valuation, the number of shares multiplied by the stock price per share of General electric or IBM is less than that of Microsoft Corporation. It has also been noted the firm is awash in cash and is said to be debt free and it is believed that the firm issues vast amount of stock options to its employees and officers to keep them working at very low wages instead of borrowing to grow the business.
Bernroider, E. Factors in SWOT Analysis Applied to Micro, Small-to-Medium, and Large Software Enterprises: an Austrian Study. European Management Journal, 20(5), 562-573 (2002).
ChristineWang, Microsoft dips after revenue misses expectations. Thursday, 27 Apr 2017 | 6:50.PM ETCNBC.com.p1
Tina Wadhwa, Microsoft jumps after earnings beat (MSFT). Jan. 27, 2017, 10:49 AM. Marketwatch.com
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