Microsoft’s Resurgence
Microsoft Corp. today announced the following results for the quarter ended March 31, 2019, as compared to the corresponding period of last fiscal year:
- Revenue was $30.6 billion and increased 14%
- Operating income was $10.3 billion and increased 25%
- Net income was $8.8 billion and increased 19%
- Diluted earnings per share was $1.14 and increased 20%
As someone who doesn’t follow Microsoft that closely, I’m impressed with how they have turned things around—and how quickly. It seems like they have a plan that makes sense and are executing well.
Microsoft has become the third US company to pass a market cap of $1 trillion. The software giant passed the milestone briefly today after a jump in stock price today following strong fiscal Q3 earnings. Microsoft joins Apple and Amazon in hitting the $1 trillion valuation ahead of rival Google.
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Microsoft’s latest earnings also revealed that the three main buckets the company splits its businesses up into are all doing well and roughly contributing the same amount of revenue this quarter (around 30 percent each).
- Office, LinkedIn, and Dynamics = $10.2 billion in revenue
- Azure cloud, server products, and enterprise services = $9.7 billion in revenue
- Windows, Xbox, and Surface = $10.7 billion in revenue
Microsoft’s conversion of Office to a ubiquitous enterprise cloud service is truly impressive.
Remember when everyone said Google Apps would “take over the Enterprise”? I laughed back then. Now it’s all but impossible. Google missed the chance.
One amusing side note: The press release was obviously written in Word and exported to HTML. Just look at the source.
The critical breakthrough was three-fold, and, as it so often the case, the three break-throughs were really about the same existential question — whither Windows:
- First, Microsoft’s leadership accepted that its nature was that of a horizontal company, not a highly differentiated vertical one built around Windows.
- Second, Microsoft embraced a world where Windows was one client amongst many, and targeted its services to iPhone, Android, Linux, and Mac.
- Third, and most importantly, Satya Nadella brilliantly navigated The End of Windows internally, freeing Microsoft employees to build products that customers actually wanted, not that Microsoft needed.
The most important factor that made all of this possible, though, is that for all of the disruption that the enterprise market has faced thanks to the rise of software-as-a-service (Saas), Microsoft was remarkably well-placed to take advantage of this new paradigm, if only they could get out of their own way.
A contrary take:
From revenues as well as profit perspective Ballmer actually grew Microsoft more than Nadella. Market just decided not to reward that. Current growth centers including Azure, Surface etc were all started and championed originally by Ballmer. It was Ballmer who was willing to pour in investment like crazy in Hololens as well Bing. On the other hand, Nadella has failed to add single new product in Microsoft's portfolio during his half decade as CEO. Microsoft today has simply no presence in home automation, smart assistants, wearable or self-driving markets that have emerged during past 5 years. Nadella has literally missed boat in every single new category that has came around during his time. All the while its rivals have moved fast and picked up top spots in these new markets. Windows revenues is still falling like crazy and obviously there is no Smarthone story from Nadella yet.
The only thing that is compensating all these troubles is cloud and that too had been hazy on actual utilization. The engineering execution in Azure begs a question about how much worse it can get. Out of all providers, Azure literally has been the least impressive from technical standpoint in everything from UX to availability to features to documentation to API design. Once cloud market saturates and race to bottom ensues, Microsoft could have big trouble in maintaining current revenues and profits due to lack of new products. It will take few quarters before stock market reacts but all of these same people praising Nadella right now would suddenly come around and brand him the worst CEO in history as soon as stock dips.
Update (2019-07-23): Charlie Bilello:
Microsoft was the largest company in the world back in 2000. Then it suffered a 70% drawdown over the next 9 years to its low in March 2009. It did not surpass its 2000 high until 2014, 14 years later (total return). Today it is once again the largest company in the world.
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