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For Microsoft, It is All About the Cloud

Posted on Friday, May 8th 2015

It is all about the cloud within the technology sector. And the biggest news so far is the possible sale of Salesforce.com. In a surprising move, it appears that Microsoft (Nasdaq: MSFT) is evaluating a bid for the giant.

Microsoft’s Financials

Meanwhile, Microsoft also reported stellar third quarter results. Revenues for the quarter grew 6% over the year to $21.7 billion yielding an EPS of $0.61. The market was looking for revenues of $2.07 billion with an EPS of $0.51.

By segment, devices and consumer revenues grew 8% over the year to $9 billion. Among key operating metrics in the segment, Microsoft reported a 35% growth in the Office 365 Consumer subscriber base to 12.4 million. Search advertising revenues were up 21% with Bing accounting for 20.1% in the US search market. XBox Live usage also increased 30% over the year. Within devices, revenues from Surface grew 44% to $713 million and phone hardware sales came in at $1.4 billion. During the quarter, Microsoft reported 8.6 million unit sales for Lumia.

Commercial revenues grew 5% over the year to $12.8 billion with commercial cloud revenues increasing 106% driven by increased adoption of Office 365, Azure, and Dynamics CRM Online. Server products were up 12% while both Office and Windows sales fell 2% over the year.

For the current quarter, Microsoft forecast revenues of $20.6 billion-$21.4 billion, falling significantly short of the Street’s forecast of $24 billion.

Microsoft’s Acquisitions

Microsoft continued their acquisition spree in the latest quarter. Recently, they announced the acquisition of Israeli touchscreen technology firm N-Trig. N-Trig has already worked with Microsoft for the touchscreen technology deployed by Surface Pro 3.

They also acquired Sunrise, a provider of a next-generation calendar app for both iOS and Android platforms. Microsoft plans to leverage the acquisition to reinvent the way people use calendars on mobile devices so that users can better manage their time in a mobile-first, cloud-first world. Terms of the deal were not disclosed, but analysts estimate that the deal was worth $100 million.

In March this year, they also acquired collaboration startup LiveLoop. San-Francisco-based LiveLoop offered a web service that allowed users to share their PowerPoint presentations without asking them to download any software. The terms of the deal were not disclosed. Microsoft plans to use LiveLoop’s technology and talent to help improve their collaboration tools across the Office platform.

Last month, Microsoft announced the acquisition of mobile BI service Datazen. Datazen runs on Windows Server and helps businesses create mobile dashboards from data in Microsoft Excel and other cloud and enterprise database sources. The acquisition will help complement their cloud-based business analytics service Power BI.

Microsoft’s Cloud Focus

Microsoft is targeting a cloud revenue run rate of $20 billion by 2018. They are announcing big innovations within the segment to help get to this target. Recently, they announced the release of Microsoft Azure Stack that lets organizations install a full version of Microsoft’s Azure cloud software on their own servers. The move will help give the developers the flexibility to create applications and then decide on where to deploy them later on. The Azure Stack will, essentially, enable the hybrid cloud for the organization.

Earlier, I had spoken about how Microsoft would make cloud acquisition moves under Nadella’s leadership. It appears that now they are evaluating a bid for the acquisition of Salesforce. While the company has neither confirmed nor denied the report, the market is already abuzz with what the potential deal could mean. Salesforce is worth $50 billion and has an impressive portfolio of both technology and clients to boast of. Last year, Salesforce and Microsoft entered into an agreement to make it easier to run Salesforce on Windows Mobile phones and in Office. The acquisition would help Microsoft control the entire cloud suite.

But Salesforce’s biggest issue lies in their desire to turn profitable. The acquisition may give Microsoft a giant leap into the cloud space, but it will come at a cost to its earnings. For now, both companies have kept silent about the possible bid.

Microsoft’s stock is trading at $46.28 with a market capitalization of $379.7 billion. It touched a 52-week high of $50.05 in November last year.

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