The empire counter-attacks or Microsoft's return to the top

Michaël from m7b5 Digital

Blog section Dec. 02 2018

On Friday at closing, $851.2 billion was required to buy all the company's shares. That's three times the value of the Redmond giant when Mr. Nadella took over in 2014.

Apple, which is going through a difficult time and lost 20% of its stock market value in eight weeks, was worth "only" $847.4 billion on Friday.

In the 1990s, Microsoft was an all-powerful company that provided the driving force behind the IT revolution for all: the Windows operating system. But then it went into the background behind Apple, Google and Amazon.

The return to the forefront is due to a combination of patience, diversification and the courage to get rid of activities that have not been as successful as expected, analysts explain.

"Microsoft is in full swing right now," says Jack Gold, a high-tech analyst at J. Gold Associates. "Satya Nadella did a fantastic job of diverting the company from dead ends and being more innovative.

Nadella, born in India and now 51, replaced Steve Ballmer as head of Microsoft, where he headed the cloud division.

Microsoft, almighty before experiencing an eclipse, has returned to the top after three years of an extraordinary transformation under the leadership of its CEO Satya Nadella.

Microsoft continues to make a lot of money with the latest iteration of its Windows system, but it has used its leadership position in this field as a lever to attract business customers to its cloud computing platform called Azure.

"Azure was very important to Microsoft," says Gold.

For companies whose IT systems are already running in the Microsoft world, "it's easy to stay with Microsoft" for the cloud, he adds.

In addition to Azure, Microsoft also relies on its Xbox game console, tablets and Surface PCs and the LinkedIn professional social network, purchased in 2016.

The company, founded by Bill Gates, won a $480 million contract from the U.S. military in November to allow troops to train in a virtual environment. And it is on the ranks, like Amazon, to win a huge multi-billion dollar contract from the Pentagon, which wants to move into the cloud.

These diversified sources of income contrast with Apple, which has bet a good part of its turnover and (huge) profits on the iPhone.

"For Apple, we have reached the pinnacle of the iPhone and it's a very difficult market. People who have been following Apple for a long time had predicted this would happen and the question now is how fast Apple can make the transition to services," notes Bob O'Donnell of Technalysis Research.

By focusing more on business services, Microsoft is less visible, but it is also "less fashion-conscious," O'Donnell adds.

The lesson of failures

An important factor in Microsoft's transformation came from the decision to exit the mobile phone business, after buying its mobile phone business from Finland's Nokia for $7 billion in 2014.

The group has failed to compete with Apple and Android, Google's operating system, which dominate the market.

"I think Satya Nadella has shown extraordinary judgment," says Roger Kay, an analyst at Endpoint Technologies Associates.

Microsoft's failure in smartphones may even have contributed to the company's success by forcing it to work with competing operating systems.

Apple for the moment remains essentially a closed ecosystem with its operating system running on its devices.

"Apple will have to change that," says Kay.

The apple brand took a first small step this week: it agreed to let its Apple Music streaming service access through Amazon's connected speaker.

Source: Lapresse.ca