Microsoft, founded in 1975, generates revenues by developing, licensing, and supporting a wide range of software products, by offering services, including cloud-based services to consumers and businesses, by designing, manufacturing and selling devices that integrate with cloud-based services and by delivering relevant online advertising to global customers.
Products include operating systems for computing devices, servers, phones, and other intelligent devices; server applications for distributed computing environments; productivity applications; business solution applications; desktop and server management tools; software development tools; video games; and online advertising, cloud-based solutions that provide customers with software, services includes products like Bing, Microsoft Azure, Microsoft Dynamics CRM Online, Microsoft Office 365, OneDrive, Skype, Xbox Live, and Yammer. Cloud revenue is earned from usage fees, advertising, and subscriptions.
Financials and Market scope
In fiscal 2014, Microsoft had posted revenue growth of 11.54% to USD 86.33 billion.Commercial licensing, devices and consumer licensing contributed 70% to revenues. Microsoft Office system and Windows PC operating system contributed USD 41.71 billion in revenues, which is 47.42% of total revenues.Net income stood at USD 22 billion, growth of 0.97% over fiscal 2013. Microsoft’s most significant expenses are related to compensating employees, designing, manufacturing, marketing, and selling products and services and datacentre costs.
Microsoft also conducts research and develops advanced technologies for future software, devices, and services. Company sees significant opportunities for growth in Digital work and life experiences (business process tools including Skype, OneDrive, OneNote, Outlook, Word, Excel, PowerPoint, Bing, and Dynamics enhancements),cloud operating systems, devices operating systems and hardware.
In fiscal 2014 Microsoft had completed the transaction to acquire Nokia Corporation’s Devices and Services Business (NDS). With the acquisition of NDS, company can operate manufacturing facilities for the production and customization of phones in Brazil, China, Hungary, Mexico, and Vietnam.
The market for software, devices, and cloud-based services is dynamic and highly competitive. The Windows operating system faces competition from various software products and from alternative platforms and devices, mainly from Apple and Google.
Xbox Platform competes with console platforms from Sony and Nintendo, both of which have a large, established base of customers.
Windows Phone operating system faces competition from iOS, Android, and Blackberry operating systems. Phones face competition primarily from Samsung and Apple, as well as many other mobile device manufacturers.
Search and display advertising business competes with Google and a wide array of websites, social platforms like Facebook, and portals like Yahoo.
Microsoft faces competition for their resale products and services from various online marketplaces, including those operated by Amazon, Apple, and Google.
Server operating system products face competition from a wide variety of server operating systems and applications offered by companies with a range of market approaches such as Hewlett-Packard, IBM, and Oracle which offer their own versions of the Unix operating system preinstalled on server hardware. Competitors to MS Office Commercial includes software application vendors such as Adobe Systems, Apple, Cisco Systems, Google, IBM, Oracle, SAP, and numerous web-based competitors as well as local application developers in Asia and Europe.
Microsoft Azure faces diverse competition from companies such as Amazon, Google, IBM, Oracle, Salesforce.com, VMware, and other open source offerings.
Microsoft is listed on New York stock exchange (NYSE) and current price is at USD 41.42. The company has a debt equity ratio 0.25 at the end of fiscal 2014 and has a current market capitalization of USD 349.5 billion with a PE multiple of 15.92. The Market Capitalization to Sales ratio is 3.73. The company has declared dividend of USD 1.12 in fiscal 2014.
Fiscal 2015 second quarter results
For second quarter ended on 31st December 2014, revenues for Microsoft increased 8 percent to USD 26.47 billion. Gross margin, operating income, and earnings per share for the quarter were USD 16.3 billion, USD 7.8 billion, and USD 0.71 per share, respectively.Net income was down 11%.to USD 5.8 billion. Second quarter financial results include US 243 million of integration and restructuring expenses related to both Microsoft’s restructuring plan announced in July 2014 and the ongoing integration of the Nokia Devices and Services business.