Financial Performance of Microsoft

8/14/2019 Financial Performance of Microsoft

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MBA

(Master in Business Administration)

FI612: Financial Environment

Instructor: Dr. Loukia Evripidou

FINAL PROJECT: COMPREHENSIVE ANALYSIS OF MICROSOFT

Group Members:

Sheena Mayadas S20091307

Benny H Najarian F20081852

Evangelos Andreou F20081960

Kyriacos Tengeris S20091300

Ganesh Uprety F2006758

Fall Semester 2009

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Table of Contents

1.About Microsoft.............................................................................................3

1.1.History ............................................................................................................3

1.2.Core Activities.................................................................................................3

1.3.Microsoft Mission and Values...........................................................................4

1.4.Strengths and Weaknesses.............................................................................4

2.Strategy and Performance of Microsoft........................................................5

2.1.Fiscal year 2008.............................................................................................. 6

2.2.First quarter 2009............................................................................................7

3.Clients...........................................................................................................7

4.Competitors ................................................................................................8

5.Performance Analysis - Microsoft Vs Competitors.........................................9

5.1.Industry Performance......................................................................................9

5.2.Financial Strength .......................................................................................... 9

5.3.Liquidity ratios:..............................................................................................12

6.Regulators ..................................................................................................12

6.1.US SECURITIES AND EXCHANGE COMMISSION .............................................13

6.2.UNITED STATES FEDERAL EXECUTIVE DEPARTMENT ....................................13

6.3.EUROPEAN COMMISSION...............................................................................147.Short and Long Term Perspectives.............................................................14

7.1.Microsoft Expands Virtualization Initiatives with HP......................................15

7.2.The worldwide launches of Windows 7 Operating System.............................15

7.3.EBay Teams Up With Microsoft to Offer Daily Deals......................................17

7.4.Microsoft buys data Centre software firm Opalis...........................................18

8.Conclusion .................................................................................................19

9.References..................................................................................................21

10. APPENDIX.................................................................................................24

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1. About Microsoft

1.1. History

Microsoft Corporation was founded in the early 1970s by William Henry

Gates III with the intention to develop and sell BASIC interpreters for the

Altair 8800. Microsoft rose to dominate the home computer operating system

market with MS-DOS in the mid-1980s, followed by the introduction of

Windows line of operating systems. Microsofts products have managed to

achieve achieved great success in the desktop computer market.

Throughout its history, Microsoft has however been the target of criticism

against certain mal practices, including accusation for monopolistic

business practices and anti-competitive strategies including refusal to deal

and various tying arrangements. The U.S. Justice Department and the

European Commission, among others, have ruled against Microsoft for

various antitrust violations.

Microsoft possesses footholds in other markets; with assets such as theMSNBC cable television network, the MSN Internet portal, and Microsoft

Encarta multimedia encyclopaedia. The company also markets both

computer hardware products such as the Microsoft mouse as well as home

entertainment products such as the Xbox, Xbox 360, Zune and MSN TV

which are also major success stories for the company. Microsoft's initial

public stock offering (IPO) was in 1986 and the ensuing rise of the company's

stock price led to the creation of four billionaires and an estimated 12,000

millionaires amongst Microsoft employees.

1.2. Core Activities

Microsoft Corporation is a United States multinational computer technology

corporation that develops, manufactures, licenses and supports a wide range

of software products for computing devices. Headquartered in Redmond,

Washington, USA, its most profitable products are the Microsoft Windowsoperating system and the Microsoft Office suite of productivity software.

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1.3. Microsoft Mission and Values

"A computer on every desk and in every home around the world, running

Microsoft software." Microsofts mission statement (3).

Microsoft is committed in its long term mission of helping its customers

realize their full potential. The company constantly updates and improves its

products, continually evolving with the market so as to be in the best

position to accelerate new technologies as and when they emerge, and to be

in a better position to serve their own customers. (12)

At the heart of Microsofts success is their commitment to innovation and

their devotion to investing more in research and development combined with

the use of talented researchers, scientists and engineers working across the

globe to create new technology breakthroughs.

1.4. Strengths and Weaknesses

A SWOT analysis helps to classify the internal strengths and weaknesses of

the company versus external situational factors such as opportunities and

threats. Strengths serve as a foundation for building competitive advantage,

and weaknesses may hinder it. By understanding these four aspects of an

environmental situation, a firm can better leverage its strengths, correct its

weaknesses, capitalize on golden opportunities, and deter potential threats.

1.4.1. Strengths

A Multinational Corporation that operates through regional subsidiaries

to minimize cultural differences in more than 60 countries.

Global recognition of the Microsoft name and the companys ability

for rapid product development.

Microsofts product interfaces are considerably user friendly

Proliferation of Microsoft Office productivity suite (Word, Excel,

Outlook, etc.) throughout the business community

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Flexible, Loyal, hardworking, and diverse workforce (20% minority,

26% women) who, in addition to good compensation, have an

opportunity to do well financially through stock purchases.

Windows 95, 98, 2000 series, Windows NT, Windows XP and WidowsVista are globally known as the PC desktop operating system with a

market share of about 88%.

1.4.2. Weaknesses

Between 1990-1995, Microsoft leadership failed to correctly anticipate

the growth and popularity of the Internet. This left room for Google to

grab a foothold in the search engine arena

Dependency on hardware manufacturers to pre-install Microsoft's PC

operating system.

The company has experience increases in employee turnover from 6%

for a ten year period to 7.4%

Falling sales in their operating systems and server software sectors

Little or no significant presence in the wireless market and Windows CE

has been disappointing Perceived by many as a cut-throat competitor that uses its dominant

market position to marginalize competition by stealing/destroying the

competition's products, stifling product innovation, and decreasing the

availability of competitor products.

Products have a single application focus and do not work well with or

on-top of other products (18) & (19)

2. Strategy and Performance of Microsoft

As mentioned, Microsofts corporate strategy is highly customer oriented

focusing on ways to deliver new and innovative means of addressing how

customers use their software, and to offer solutions to business problems.

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2.1. Fiscal year 2008

Fiscal year 2008 was a successful year for Microsoft and saw the company

deliver outstanding financial results and introduce significant innovations

across the breadth of their product portfolio, further making key investmentsto position the company for strong future growth. Thanks to the continued

success of their core Windows and Office businesses, and positive growth in

all of the Companys business groups, revenue jumped to $60.4 billion in

fiscal 2008, an increase of 18 percent compared with the previous fiscal year

and a positive indicator for existing shareholders (1). Additionally, earnings

per share reached $1.87 and Microsoft returned $16.5 billion to shareholders

through stock buybacks and dividends (1).

A number of key announcements were made throughout the year concerning

important changes to their technology and business practices and so as to

increase openness of their products and drive greater interoperability and

choice for developers, partners, customers, and competitors. The company

further announced important strategic acquisitions to strengthen their

offerings in key markets and add to their broad innovation portfolio. Some

examples included the acquisitions of AdECN, Rapt and YaData, which

brought leading-edge capabilities for advertisers and publishers to

Microsofts advertising platform. Furthermore, the acquisition of Calista

Technologies and Kidaro, enabled the company to continue to position

themselves as a leader in the critical market for virtualization (1). Another

important event which took place in February 2008, was Microsofts proposal

to acquire Yahoo!. The proposed transaction was designed to accelerate the

companys strategy in online search and advertising. However, after careful

consideration, Microsoft determined that the economics of the deal terms

demanded by Yahoo! and the need to move forward quickly in partnership

on regulatory review and to integrate the two companies meant that the deal

was no longer in the best interest of Microsoft shareholders. Nonetheless,

despite the deal being dropped, Microsoft remains committed to being a

leader in online search and advertising and make investments that will

enable them to succeed.

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2.2. First quarter 2009

First quarter of 2009 further saw Microsoft benefit from strong performance

as a result of strong Windows and Xbox demand and execution, thus

resulting in strong revenue inflow. The Company continued with its cost

discipline strategy and saw its business segments stabilize. The company

further benefited from adjusted EPS growth of 8% compared with 2008 and

an operating cash flow of $6.1 billion (2) & (16).

3. Clients

Microsoft strives to provide products and service which cater to the needs of

serve Individual consumers, small and medium-sized organizations,

enterprises, governmental institutions, educational institutions, Internet

service providers, application developers, and Original Equipment

Manufacturers (OEMs). Consumers as well as small to medium sized

organizations obtain Microsoft products primarily through resellers and

OEMs. No sales to any individual customer accounted for more than 10% of

fiscal year 2009, 2008, or 2007 revenue (6).

Microsoft believes their five business segments offer the greatest potential to

serve customers:

Client : Includes the Windows product family and is responsible for

their relationship with personal computer manufacturers. (21)

Server and Tools : Software server products, services and solutions,

including- Windows Server operating system, Microsoft SQL Server,Microsoft Enterprise Services, Visual Studio, System Center products,

Forefront security products and Biz Talk Server. (22)

Online Services Business : Consists of an online advertising platform

with offerings for publishers and advertisers, personal communications

services such as e-mail and instant messaging, and online information

offerings such as Live Search and the MSN portals and channels. (23)

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Microsoft Business Division : Includes the Microsoft Office suites,

desktop programs, servers, and services and solutions; Microsoft

Dynamics; and Unified Communications business solutions. (24)

Entertainment and Devices Division : Consists of the Xbox videogame system, including consoles and accessories, Xbox Live

operations, Zune digital music and entertainment device; Media room,

mobile and embedded device platforms, Surface computing platform,

and Windows Automotive. (25)

4. Competitors

Microsofts prime competitors in the software industry are:

Google Inc. (GOOG)

An American public corporation, earning revenue from advertising related to

its Internet search, e-mail, online mapping, office productivity, social

networking, and video sharing services as well as selling advertising-free

versions of the same technologies. Google is well known for its open

sourceweb browser and is today one of the most popular search engines

used globally. Its initial public stock offering (IPO) took place on the 19th

August 2004 at $85 per share. Today its shares are priced at $590.51.

IBM

International Business Machines (IBM) is a multinational computer

technology and IT corporation headquartered in New York. IBM manufactures

and sells computer hardware and software (with a focus on the latter), and

offers infrastructure services, hosting services, and consulting services in

areas ranging from mainframe computers to nanotechnology.

Today IBM shares are selling at $ 129.68 per share.

Oracle Corporation (ORCL)

A multinational computer technology corporation that specializes in

developing and marketing enterprise software products,

particularly database management systems. Oracle has managed to enlarge

its share of the software market through organic growth and through a

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http://www.microsoft.com/msft/IC/segments_mbd.aspxhttp://www.microsoft.com/msft/IC/segments_edd.aspxhttp://en.wikipedia.org/wiki/Public_companyhttp://en.wikipedia.org/wiki/AdWordshttp://en.wikipedia.org/wiki/Google_searchhttp://en.wikipedia.org/wiki/Gmailhttp://en.wikipedia.org/wiki/Google_Mapshttp://en.wikipedia.org/wiki/Google_Appshttp://en.wikipedia.org/wiki/Orkuthttp://en.wikipedia.org/wiki/Orkuthttp://en.wikipedia.org/wiki/YouTubehttp://en.wikipedia.org/wiki/Google_Search_Appliancehttp://en.wikipedia.org/wiki/Open_sourcehttp://en.wikipedia.org/wiki/Open_sourcehttp://en.wikipedia.org/wiki/Google_Chromehttp://en.wikipedia.org/wiki/Internet_hosting_servicehttp://en.wikipedia.org/wiki/Consultanthttp://en.wikipedia.org/wiki/Mainframe_computerhttp://en.wikipedia.org/wiki/Nanotechnologyhttp://en.wikipedia.org/wiki/Enterprise_softwarehttp://en.wikipedia.org/wiki/Database_management_systemhttp://www.microsoft.com/msft/IC/segments_mbd.aspxhttp://www.microsoft.com/msft/IC/segments_edd.aspxhttp://en.wikipedia.org/wiki/Public_companyhttp://en.wikipedia.org/wiki/AdWordshttp://en.wikipedia.org/wiki/Google_searchhttp://en.wikipedia.org/wiki/Gmailhttp://en.wikipedia.org/wiki/Google_Mapshttp://en.wikipedia.org/wiki/Google_Appshttp://en.wikipedia.org/wiki/Orkuthttp://en.wikipedia.org/wiki/Orkuthttp://en.wikipedia.org/wiki/YouTubehttp://en.wikipedia.org/wiki/Google_Search_Appliancehttp://en.wikipedia.org/wiki/Open_sourcehttp://en.wikipedia.org/wiki/Open_sourcehttp://en.wikipedia.org/wiki/Google_Chromehttp://en.wikipedia.org/wiki/Internet_hosting_servicehttp://en.wikipedia.org/wiki/Consultanthttp://en.wikipedia.org/wiki/Mainframe_computerhttp://en.wikipedia.org/wiki/Nanotechnologyhttp://en.wikipedia.org/wiki/Enterprise_softwarehttp://en.wikipedia.org/wiki/Database_management_system


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number of high-profile acquisitions. In 2007 Oracle had the third-largest

software revenue, after Microsoft and IBM. The corporation has arguably

become best-known due to association with its flagship product, the Oracle

database. Today, ORCL shares are selling at $ 22.78 per share.

5. Performance Analysis - Microsoft Vs Competitors

Microsoft competes in the Software Industry and is listed on the stock

exchange under MSFT which is a major component of the S&P 500, Dow

Industrials and Nasdaq 100 indexes. For the purpose of this report we have

carried out our analysis of MSFT performance against competitor

performance for Google (GOOG), Oracle (ORCL) and IBM, for which we will

compare annual and quarterly financial results.

5.1. Industry Performance

Here we attempt to provide some insight into the financial performance of

MSFT next to its competitors (all data referred to is found in the Appendix).

5.1.1. Return on Assets (ROA)

ROA provides an indication of MSFTs profitability relative to its total assetsand is indicative of how efficient management is, at using its assets to

generate earnings. Calculated by dividing a company's annual earnings by

its total assets, ROA is displayed as a percentage. Sometimes this is referred

to as "return on investment". As is evident in Fig 7, MSFTs performance next

to competitors is average and as can be seen, the company has benefited

from strong annual earnings since 2004, thus increasing ROA.

5.2. Financial Strength

The following ratios are of interest to existing and potential shareholders.

5.2.1. Return on Equity

ROE is useful in comparing the profitability of a company to that of other

firms in the same industry and is of interest to potential shareholders when

deciding which company to invest their money. Higher return on equity

implies more efficient use of shareholders equity towards the total income

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generated by the company. Referring to Fig 3 we can see MSFTs ROE has

decreased from a high in 1999 at 36% to 12% in 2003, before recovering

strongly to over 50% in 2008. This positive increase in ROE from 2004 was

associated with stronger growth in Net Income compared with growth inshareholder equity. It is not as efficient compared with industry competitors

but MSFT does show less fluctuation (volatility) over the years (14).

5.2.2. Gearing ratio

Gearing ratio of a company shows the dependence on borrowed funds as

compared to its own funds. Debt usually includes long term borrowings

which include long term bank loans, debentures and preference shares.

Equity on the other hand is the same as shareholders own funds and usually

includes share capital + reserves. Gearing is a measure of financial leverage,

demonstrating the degree to which a firm's activities are funded by owner's

funds versus creditor's funds. The higher a company's degree of leverage,

the more the company is considered risky. A company with high gearing

(high leverage) is more vulnerable to downturns in the business cycle

because the company must continue to service its debt regardless of how

bad sales are. A greater proportion of equity provides a cushion and is seen

as a measure of financial strength.

When comparing Microsoft's gearing ratio with the industry, we can see it is

considerably low. Historical data shows no record of long term debt thus

telling us that Microsoft is low -geared with a low proportion of loans. It can

be inferred that - based on its low gearing ratio - investing in Microsoft is a

potentially low risk investment compared with competitors.

5.2.3. Earnings per Share

Earnings per share (EPS) are the earnings returned on the initial investment

amount. Additionally, it is the portion of a company's profit allocated to each

outstanding share of common stock. EPS serves as an indicator of a

company's profitability (the higher the P/E the more the market is willing to

pay for the companys earnings).

EPS is the way to calculate how much 1 share earns from the organization.Based on September 2009 quarter results, Microsoft spent 20.49% of gross

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profits on R&D and 35.04% on selling, general and administrative (SGA)

expenses. Revenues fell 14.22% year on year to $12.92B. The company in

2009 is trading at 19.20 times earnings (PE) and 4.69 times revenue (PSR).

At the end of September 2009, Microsoft had $36.73B in cash in hand and$3.75B in long-term debt. On 23rd October 2009, Microsoft reported net

income of $3.57B, with diluted earnings per share of $0.40. The company

has however managed to deliver an 11.30% average annual increase in its

EPS since 1999. (8)

It should be noted that Microsoft is very large organization with many shares,

and although it records good net profit, the higher figure of shares is the

reason why its EPS is lower in comparison with competitors (Refer to

Appendix figure 9).

5.2.4. P/E Ratio

The P/E ratio of a company is the most popular ratio among the investing

community. It brings together the market share price of the company with

the profitability of the company. It is in fact very important to the investing

community that is compulsory for public companies to disclose it in their

annual profit loss account. The higher the P/E ratio, the more the market is

willing to pay for each $ or of annual earnings. Companies with high P/E

ratios are more likely to be considered "risky" investments than those with

low P/E ratios, since a high P/E ratio signifies high expectation. The PE ratio

gives an investor a better understanding of a companys value. Basically with

the PE ratio we can calculate how many dollars we are paying for each dollar

of a companys earnings. We can see in the PE ratio graph that Microsoft has

a PE of 11.35 which is a considerable low PE ratio (Refer Appendix figure 4)

5.2.5. Dividend yield

A financial ratio that shows how much a company pays out in dividends each

year relative to its share price. In the absence of any capital gains, the

dividend yield is the return on investment for a stock. Generally speaking,

there is no big difference between Microsofts dividend yields ratio compared

with the S&P 500. On the other hand, comparing with IBM and ORACLE it ishigh. A high dividend yield can be considered to be evidence that a stock is

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under priced or that the company has fallen on hard times and future

dividends will not be as high as previous ones. Similarly a low dividend yield

can be considered evidence that the stock is overpriced or that future

dividends might be higher. Microsoft has 2.57% dividend yield, higher thancompetitors and maintains its position as market leader (Refer Appendix

figure 10).

Most growth stocks (companies in a rapidly expanding market) don't pay

dividends. Such is the case for GOOG and YAHOO who instead turn the

money back into the company in order to fund growth. This enables them to

withhold from borrowing (helping stockholders by not requiring them to pay

more interest) or issue more stock (helping stockholders by not diluting

ownership). Companies in more stable industries are the ones more likely to

pay dividends.

5.3. Liquidity ratios:

5.3.1. Current ratio

The current Ratio is one of the tests of an organizations financial strength. Itcalculates how many assets are likely to be converted to cash within one

year in order to cover debts that fall due during the same year. A Current

ratio of 1.5 is normally acceptable as it indicates a company can pay its

debts from its current assets. Microsofts current ratio of 1.59 enables us to

conclude it is in a relatively good financial position (see figure 5 & 6).

6. Regulators

These are key bodies that establish, monitor, reform and enforce regulations

for companies. A regulators main function is to protect current and potential

investors and to maintain fair, orderly, and efficient markets that facilitate

capital formation. The Influence of regulators is of extreme importance in the

case of Microsoft due to the fact that regulators tend to pay more attention

to larger corporations than small companies and this invariably affects the

primary activities at Microsoft.

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The U.S. Securities and Exchange Commission, the United States

Department of Justice and the European Commission place a lot of pressure

on companies like Microsoft to police and control pricing policies, set pricing

ceilings, patents, profit ceiling per product, market share etc.

6.1. US SECURITIES AND EXCHANGE COMMISSION

Commonly known as the (SEC), is an independent agency of the United

States government that holds primary responsibility for enforcing the federal

securities laws and for regulating the securities industry, the nation's stock

and options exchanges, and other electronic securities markets. The laws

and rules that govern the securities industry in the United States derive from

a simple and straightforward concept: all investors, whether large

institutions or private individuals, should have access to certain basic facts

about an investment prior to buying it, and for the duration they hold it. To

achieve this, the SEC requires public companies to disclose meaningful

financial and other information to the public (4).

Because Microsoft headquarters are located in the U.S, this body has a

powerful impact on the companys stocks and pricing policy and recent

announcements of the SEC have influenced many of Microsofts decisions.

6.2. UNITED STATES FEDERAL EXECUTIVE DEPARTMENT

The United States Department of Justice (DOJ) is the United States federal

executive department responsible for the enforcement of the law and

administration of justice, equivalent to the justice or interior ministries of

other countries.

Recent laws, (for example that monopolistic strategies should be strictlyforbidden) have forced Microsoft to change pricing of software products for

computing devices. The United States Department of Justice enforces laws

that big multinational companies must follow. Microsoft cannot charge

products at any price, because potential customers are protected. By setting

a product ceiling, Microsoft limits its profits, resulting in a lower distribution

of profits to shareholders.

An important factor that affects the operations of Microsoft is the prohibitionof a monopoly. Microsoft Corporation prides itself in having a presence in

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more than 90% of locations where there is a need for computer system.

Their market share might be in line with the presence of customers

demanding computer systems and accessories, but a market share of this

figure (90%) is strictly prohibited in the US.

6.3. EUROPEAN COMMISSION

The European Commission (formally the Commission of the European

Communities) acts as an executive of the European Union. The body is

responsible for proposing legislation, implementing decisions, upholding the

Union's treaties and the general day-to-day running of the Union. The

European Commission has ruled against Microsoft for various antitrust

violations and has enforced legislation, treaties, and decisions that have to

be respected by companies. Decisions and large bilateral contracts should be

followed by Microsoft when engaging with companies that operate in the

European Union. This is better explained by the fact that the EU and U.S are

each others main trading partners in goods and services and thus account

for the largest bilateral trade relationship in the , as well as providing each

other with the most important source of foreign direct investment (FDI).

Overall, regulators play a decisive role in terms of Microsofts strategies and

operations. Decisions by the U.S. Securities and Exchange Commission,

United States Department of Justice and European Commission have an

impact on Microsofts current and potential shareholders, and investors.

Pricing products is very important for large companies like Microsoft and

compliance with the laws and regulations of these bodies indirectly affects

the overall profitability and market share of Microsoft because establishing,

monitoring, reforming and enforcing regulations is a must for every

company.

7. Short and Long Term Perspectives

This last section highlights some important events, namely acquisitions and

new product developments by Microsoft that will help shape our final

conclusion.

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7.1. Microsoft Expands Virtualization Initiatives with HP

In 2008, Microsoft announced expanded product, sales and services

initiatives with HP aimed at helping businesses more easily adopt and deploy

virtualization to help lower information technology costs and make IT more

efficient. Microsoft has expanded its work together with HP to sell and

market storage, server and networking consolidation solutions and desktop

virtualization solutions to small-, medium-sized- and large-business

customers worldwide. This was a strategic move on behalf of the two

companies who have been able to achieve a dynamic IT infrastructure that

can almost double computing capacity on demand across the enterprise,

which is huge. Furthermore, the deal enables them to consolidate their

infrastructure by 60 percent, reducing operational costs by 30 percent, which

maximizes value for their shareholders (17).

7.2. The worldwide launches of Windows 7 Operating System

Windows 7 has been set to break retail records and has become the biggest-

grossing pre-order in Amazon's history worth even more than the most

recent JK Rowling book, Harry Potter and the Deathly Hallows. "The launch of

Windows 7 has superseded everyone's expectations," the managing director

of Amazon.co.uk, Brian McBride, said. "Demand is still going strong."

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Source: Client Revenues (10)

Microsofts fourth quarter earnings for 2009 were better than expected, but

the software giants client (Windows) revenue skidded 29 percent compared

with 2008. For the three months ended June 30, Microsofts client revenue

was $3.1 billion, down from $4.36 billion a year ago. That slide in Windows

revenue led to a quarterly sales shortfall of more than $1 billion relative to

Wall Street estimates.

For the fourth quarter, Microsoft reported net income of $3.05 billion, or 34

cents a share, on revenue of $13.10 billion, down 17 percent from a year

ago. That fourth quarter statement includes $276 million of Windows 7revenue deferred. That deferral hurt earnings by 2 cents a share.

Meanwhile, there were a few other moving write-offs. Microsofts fourth

quarter results included $193 million in charges, $108 million in bum

investments and $40 million in severance costs. Those items reduced

earnings by another 2 cents a share.

Client revenue decreased primarily as a result of PC market weakness,

especially PCs sold to businesses, and a 13 percentage point decline in the

OEM premium mix to 59%. Revenue growth from Windows operating

systems was also impacted by a $276 million deferral for the Windows 7

Upgrade Option program. OEM revenue decreased $1.1 billion or 31%, while

OEM license units decreased 10%. Based on our estimates, total worldwide

PC shipments from all sources declined approximately 5% to 7%, driven by

decreased demand in emerging and developed markets. See table below.

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Source: Revenues Metrics (11)

7.3. EBay Teams Up With Microsoft to Offer Daily Deals

Internet Explorer 8 is considered to be the fastest way to all the best deals

on eBay and in In 2008, Microsoft and eBay Inc announced their partnership

to offer eBay Daily Deals through a new Internet Explorer 8 Web Slice for the

upcoming holidays.

With most holiday shoppers looking to save money, Microsoft and eBay

decided to present online Daily Deals through a new Windows Internet

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Explorer 8 Web Slice that showcases popular products selling at deep

discounts. Customers will receive continuing updates and detailed

information about these Daily Deals for eBay, all within the Favorites Bar in

Internet Explorer 8.

7.4. Microsoft buys data Centre software firm Opalis

On December 11th 2009, Microsoft said that it had acquired Toronto-

based Opalis Software, a maker of data center management software.

Microsoft did not disclose financial details of the transaction, but said that

the move will augment its System Center line of management software. "I

believe this acquisition is a pivotal piece to deliver on our dynamic data

center initiative," Microsoft vice president Brad Anderson said in a blog

posting. "This deal brings together the deep data center automation

expertise of Opalis with the integrated physical and virtualized data center

management capabilities of Microsoft System Center" (23).

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8. Conclusion

As Microsoft enters a new fiscal year, we believe the company is ideally

positioned to drive strong growth in 2010 and beyond. Despite certain

shortcomings in the final quarter of 2009, Microsoft displays strong

momentum and a great pipeline of products and technologies. Even more

important, the company has great people at every level, including strong

leaders who have the experience and strategic insight to turn the

opportunities that lie ahead into even greater success in the future.

For more than 30 years, Microsoft has enjoyed tremendous success by

delivering key innovations that have revolutionized the way people

communicate, share ideas, manage their businesses, and much more. Today,

they are in the midst of one of the most exciting periods in the history of the

software industry as computing continues to become more powerful, more

portable, and more affordable. Content, communications, and media are

shifting entirely to digital formats and the combination of software plus

services is transforming the way companies create and deliver computing

experiences.

Microsoft continues to produce products that are widely used throughout the

globe and the company has managed to combat to some extent the impact

of the global recession by strengthening its position through various

acquisitions and continuous product improvement.

Financial evaluation of Microsoft leads us to conclude that the company has

very good liquidity position, a healthy gearing ratio, a growing EPS and an

overall positive outlook within the industry. Microsoft operates in a promising

market with growing potential and profitability and is the dominant leader in

many dimensions; profitability, capital base, expertise, and know how.

Based on its low gearing ratio, investing in Microsoft is a potentially low risk

investment compared with competitors. Given the companys objective to

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continually meet customer needs, we fell that Microsoft will continue be a

successful company and an attractive investment for potential investors and

for existing shareholders. Figure 11 shows the current share prices for MSFT

and competitors as at 13 December 2009. (24)

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9. References

1. MSFT Investor Relations. Available at: [Accessed27th November 2009]

2. Microsoft Company Website. Available at: [Accessed 28th November 2009].

3. Microsoft Company Website. Available at: [Accessed 29th November

2009].

4. Securities and Exchange Commission. Available at:

[Accessed 8th December

2009].

5. European Union. A Guide for Americans. Available at:

[Accessed 8th

December 2009].

6. Microsoft Corporation. 2009 Annual Report. Available at:

[Accessed 8th December 2009].

7. YCharts. Microsoft. Available at: < http://ycharts.com/companies/MSFT >


8. Tech Crunch. WSJ Says Microsoft/Yahoo Deal Not Happening. Available at:


9. Client Revenue. Q4 Summary. Available at:


10. Seven Forums. Windows 7. Available at:


21
http://www.microsoft.com/msft/reports/ar08/10k_sl_eng.htmlhttp://www.microsoft.com/msft/ic/CompanyOverview.aspx?tab=Performancehttp://www.microsoft.com/msft/ic/CompanyOverview.aspx?tab=Performancehttp://www.microsoft.com/about/default.mspxhttp://www.sec.gov/about/whatwedo.shtmlhttp://eurunion.org/eu/images/PDF/euguide2009.pdfhttp://www.microsoft.com/msft/reports/ar09/10k_fr_bus_05.htmlhttp://ycharts.com/companies/MSFThttp://www.techcrunch.com/2007/05/04/wsj-says-microsoftyahoo-deal-not-happening/http://www.techcrunch.com/2007/05/04/wsj-says-microsoftyahoo-deal-not-happeninghttp://www.techcrunch.com/2007/05/04/wsj-says-microsoftyahoo-deal-not-happeninghttp://www.techcrunch.com/2007/05/04/wsj-says-microsoftyahoo-deal-not-happening/http://www.sevenforums.com/attachments/news/20276d1248796567-microsoft-releases-q4-results-profits-down-29-msft072309a.jpghttp://www.sevenforums.com/attachments/news/20276d1248796567-microsoft-releases-q4-results-profits-down-29-msft072309a.jpghttp://www.sevenforums.com/news/18525-microsoft-releases-q4-results-profits-down-29-a.htmlhttp://www.sevenforums.com/news/18525-microsoft-releases-q4-results-profits-down-29-a.htmlhttp://www.microsoft.com/msft/reports/ar08/10k_sl_eng.htmlhttp://www.microsoft.com/msft/ic/CompanyOverview.aspx?tab=Performancehttp://www.microsoft.com/msft/ic/CompanyOverview.aspx?tab=Performancehttp://www.microsoft.com/about/default.mspxhttp://www.sec.gov/about/whatwedo.shtmlhttp://eurunion.org/eu/images/PDF/euguide2009.pdfhttp://www.microsoft.com/msft/reports/ar09/10k_fr_bus_05.htmlhttp://ycharts.com/companies/MSFThttp://www.techcrunch.com/2007/05/04/wsj-says-microsoftyahoo-deal-not-happening/http://www.techcrunch.com/2007/05/04/wsj-says-microsoftyahoo-deal-not-happeninghttp://www.techcrunch.com/2007/05/04/wsj-says-microsoftyahoo-deal-not-happeninghttp://www.techcrunch.com/2007/05/04/wsj-says-microsoftyahoo-deal-not-happening/http://www.sevenforums.com/attachments/news/20276d1248796567-microsoft-releases-q4-results-profits-down-29-msft072309a.jpghttp://www.sevenforums.com/attachments/news/20276d1248796567-microsoft-releases-q4-results-profits-down-29-msft072309a.jpghttp://www.sevenforums.com/news/18525-microsoft-releases-q4-results-profits-down-29-a.htmlhttp://www.sevenforums.com/news/18525-microsoft-releases-q4-results-profits-down-29-a.html


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11. Microsoft Press Pass. MSFT announces Chief Financial officer

Transition. Available at:

[Accessed 13

th

December 2009].

12. Microsoft Press Pass. MSFT outlines growth agenda at Annual

shareholder meeting. [online]. Available at:

[Accessed

13th December 2009].

13. Softpedia. MSFT deal fails to appease Yahoo. Available at:


14. Microsoft website. MSFT announces FQ results. Available at:


15. Microsoft Press Pass. MSFT expands virtualization initiatives with HP.

Available at: [Accessed 13th December 2009].

16. All Business. Microsoft strengths and Weaknesses. Initiatives with HP.


17. How stuff Works. Will Google destroy Microsoft. Initiatives with HP.


18. Microsoft strengths and Weaknesses. Available at:


19. Microsoft Investor Relations. Windows and Windows live division.

Available at:


22
http://www.microsoft.com/presspass/press/2009/nov09/11-24corpnewsPR.mspx?rss_fdn=Press%20Releaseshttp://www.microsoft.com/presspass/press/2009/nov09/11-24corpnewsPR.mspx?rss_fdn=Press%20Releaseshttp://www.microsoft.com/Presspass/press/2009/nov09/11-19Nov09ShareholderPR.mspx?rss_fdn=Press%20Releaseshttp://www.microsoft.com/Presspass/press/2009/nov09/11-19Nov09ShareholderPR.mspx?rss_fdn=Press%20Releaseshttp://news.softpedia.com/news/Microsoft-Deal-Fails-to-Appease-Yahoo-Shareholders-120545.shtmlhttp://news.softpedia.com/news/Microsoft-Deal-Fails-to-Appease-Yahoo-Shareholders-120545.shtmlhttp://news.softpedia.com/news/Microsoft-Deal-Fails-to-Appease-Yahoo-Shareholders-120545.shtmlhttp://www.microsoft.com/msft/earnings/fy10/earn_rel_q1_10.mspxhttp://www.microsoft.com/presspass/press/2008/nov08/11-17HPVirtPR.mspxhttp://www.microsoft.com/presspass/press/2008/nov08/11-17HPVirtPR.mspxhttp://www.allbusiness.com/europe/western-europe-ireland-dublin/5247433-1.htmlhttp://www.allbusiness.com/europe/western-europe-ireland-dublin/5247433-1.htmlhttp://computer.howstuffworks.com/google-microsoft2.htmhttp://computer.howstuffworks.com/google-microsoft2.htmhttp://www.slideshare.net/vinayak.nandi/microsoft-strength-and-weaknesshttp://www.slideshare.net/vinayak.nandi/microsoft-strength-and-weaknesshttp://www.microsoft.com/msft/IC/segments_client.aspxhttp://www.microsoft.com/presspass/press/2009/nov09/11-24corpnewsPR.mspx?rss_fdn=Press%20Releaseshttp://www.microsoft.com/presspass/press/2009/nov09/11-24corpnewsPR.mspx?rss_fdn=Press%20Releaseshttp://www.microsoft.com/Presspass/press/2009/nov09/11-19Nov09ShareholderPR.mspx?rss_fdn=Press%20Releaseshttp://www.microsoft.com/Presspass/press/2009/nov09/11-19Nov09ShareholderPR.mspx?rss_fdn=Press%20Releaseshttp://news.softpedia.com/news/Microsoft-Deal-Fails-to-Appease-Yahoo-Shareholders-120545.shtmlhttp://news.softpedia.com/news/Microsoft-Deal-Fails-to-Appease-Yahoo-Shareholders-120545.shtmlhttp://www.microsoft.com/msft/earnings/fy10/earn_rel_q1_10.mspxhttp://www.microsoft.com/presspass/press/2008/nov08/11-17HPVirtPR.mspxhttp://www.microsoft.com/presspass/press/2008/nov08/11-17HPVirtPR.mspxhttp://www.allbusiness.com/europe/western-europe-ireland-dublin/5247433-1.htmlhttp://www.allbusiness.com/europe/western-europe-ireland-dublin/5247433-1.htmlhttp://computer.howstuffworks.com/google-microsoft2.htmhttp://computer.howstuffworks.com/google-microsoft2.htmhttp://www.slideshare.net/vinayak.nandi/microsoft-strength-and-weaknesshttp://www.slideshare.net/vinayak.nandi/microsoft-strength-and-weaknesshttp://www.microsoft.com/msft/IC/segments_client.aspx


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20. Microsoft Investor Relations. Server and Tools. Available

at: [Accessed

9th December 2009].

21. Microsoft Investor Relations. Online Services Division. Availableat: [Accessed 8th

December 2009].

22. Microsoft Investor Relations. Entertainment and Devices Division.

Available at :


23. CNet News. Microsoft Buys data centre software firm Opalis. Available

at: [Accessed

13th December 2009].

24. Google Finance. Available at: < http://www.google.com/finance?

client=ob&q=NYSE:IBM > [Accessed 13th December 2009].

23
http://www.microsoft.com/msft/IC/segments_server.aspxhttp://www.microsoft.com/msft/IC/segments_osb.aspxhttp://www.microsoft.com/msft/IC/segments_edd.aspxhttp://news.cnet.com/8301-13860_3-10413836-56.htmlhttp://www.google.com/finance?client=ob&q=NYSE:IBMhttp://www.google.com/finance?client=ob&q=NYSE:IBMhttp://www.microsoft.com/msft/IC/segments_server.aspxhttp://www.microsoft.com/msft/IC/segments_osb.aspxhttp://www.microsoft.com/msft/IC/segments_edd.aspxhttp://news.cnet.com/8301-13860_3-10413836-56.htmlhttp://www.google.com/finance?client=ob&q=NYSE:IBMhttp://www.google.com/finance?client=ob&q=NYSE:IBM


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10. APPENDIX

Fig 1: Gross Profit Margin (%)

Source: Morning star website

Fig 2: Revenue ($Millions)

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Fig 3: Return on Equity (%)

Fig 4: Historical P/E

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Fig 5: Current Ratio

Fig 6: Current Ratio (Most Recent Quarter)

CURRENT RATIO(MRQ)

1,59 1,151,95

8,76

2,651,26

SF IBM

ORCL

GOO

UST

P50

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Fig 7: Return on Assets ROA

Fig 8: Gearing Ratio

2003

2005

2007

MRQ

0,00%

50,00%

100,00%MSFT

GOOGIBM

ORCL

Industry

S&P500

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Fig 9: Historical Earnings Per Share - EPS

0

2

4

6

8

10

12

14

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

MSFT

IBM

ORCL

GOOG

HISTORICAL EPS :1999/2008

Fig 10: Dividend Yield

Fig. 11: Share prices at 13 December 2009

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COMPANY PRICE OF SHARE IN US $

MSFT 29.85

IBM 129.68

ORCL 22.78

GOOG 590.51

Financial Performance of Microsoft

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