Professional Documents
Culture Documents
Group Members:
Sheena Mayadas S20091307
Benny H Najarian F20081852
Evangelos Andreou F20081960
Kyriacos Tengeris S20091300
Ganesh Uprety F2006758
1
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............................................................................... 14
7.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
2
1. About Microsoft
1.1. History
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.
3
1.3. Microsoft Mission and Values
"A computer on every desk and in every home around the world, running
Microsoft software." – Microsoft’s mission statement (3).
1.4.1. Strengths
4
• 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 Widows
Vista are globally known as the PC desktop operating system with a
market share of about 88%.
1.4.2. Weaknesses
5
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 investments
to 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 Company’s 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).
6
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:
7
• 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 video
game 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
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.
8
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.
9
generated by the company. Referring to Fig 3 we can see MSFT’s 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 in
shareholder equity. It is not as efficient compared with industry competitors
but MSFT does show less fluctuation (volatility) over the years (14).
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 company’s 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
10
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).
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 company’s value. Basically with
the PE ratio we can calculate how many dollars we are paying for each dollar
of a company’s 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)
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 Microsoft’s dividend yields ratio compared
with the S&P 500. On the other hand, comparing with IBM and ORACLE it is
high. A high dividend yield can be considered to be evidence that a stock is
11
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 than
competitors and maintains its position as market leader (Refer Appendix
figure 10).
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.
12
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.
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 strictly
forbidden) 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 prohibition
of a monopoly. Microsoft Corporation prides itself in having a presence in
13
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.
This last section highlights some important events, namely acquisitions and
new product developments by Microsoft that will help shape our final
conclusion.
14
7.1. Microsoft Expands Virtualization Initiatives with HP
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."
15
Source: Client Revenues (10)
Microsoft’s fourth quarter earnings for 2009 were better than expected, but
the software giant’s client (Windows) revenue skidded 29 percent compared
with 2008. For the three months ended June 30, Microsoft’s 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 7
revenue deferred. That deferral ‘hurt ‘earnings by 2 cents a share.
Meanwhile, there were a few other moving write-offs. Microsoft’s 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.
16
Source: Revenues Metrics (11)
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
17
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.
18
8. Conclusion
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.
Based on its low gearing ratio, investing in Microsoft is a potentially low risk
investment compared with competitors. Given the company’s objective to
19
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)
20
9. References
21
11. Microsoft Press Pass. MSFT announces Chief Financial officer
Transition. Available at:
<http://www.microsoft.com/presspass/press/2009/nov09/11-
24corpnewsPR.mspx?rss_fdn=Press%20Releases> [Accessed 13th
December 2009].
12. Microsoft Press Pass. MSFT outlines growth agenda at Annual
shareholder meeting. [online]. Available at:
<http://www.microsoft.com/Presspass/press/2009/nov09/11-
19Nov09ShareholderPR.mspx?rss_fdn=Press%20Releases> [Accessed
13th December 2009].
13. Softpedia. MSFT deal fails to appease Yahoo. Available at:
<http://news.softpedia.com/news/Microsoft-Deal-Fails-to-Appease-Yahoo-
Shareholders-120545.shtml > [Accessed 13th December 2009].
14. Microsoft website. MSFT announces FQ results. Available at:
<http://www.microsoft.com/msft/earnings/fy10/earn_rel_q1_10.mspx . >
[Accessed 13th December 2009].
15. Microsoft Press Pass. MSFT expands virtualization initiatives with HP.
Available at: <http://www.microsoft.com/presspass/press/2008/nov08/11-
17HPVirtPR.mspx > [Accessed 13th December 2009].
16. All Business. Microsoft strengths and Weaknesses. Initiatives with HP.
Available at: <http://www.allbusiness.com/europe/western-europe-ireland-
dublin/5247433-1.html> [Accessed 13th December 2009].
17. How stuff Works. Will Google destroy Microsoft. Initiatives with HP.
Available at: <http://computer.howstuffworks.com/google-
microsoft2.htm> [Accessed 10th December 2009].
18. Microsoft strengths and Weaknesses. Available at:
<http://www.slideshare.net/vinayak.nandi/microsoft-strength-and-
weakness> [Accessed 10th December 2009].
19. Microsoft Investor Relations. Windows and Windows live division.
Available at: <http://www.microsoft.com/msft/IC/segments_client.aspx>
[Accessed 9th December 2009].
22
20. Microsoft Investor Relations. Server and Tools. Available
at:<http://www.microsoft.com/msft/IC/segments_server.aspx> [Accessed
9th December 2009].
21. Microsoft Investor Relations. Online Services Division. Available
at:<http://www.microsoft.com/msft/IC/segments_osb.aspx> [Accessed 8th
December 2009].
22. Microsoft Investor Relations. Entertainment and Devices Division.
Available at :<http://www.microsoft.com/msft/IC/segments_edd.aspx>
[Accessed 8th December 2009].
23. CNet News. Microsoft Buys data centre software firm Opalis. Available
at: <http://news.cnet.com/8301-13860_3-10413836-56.html> [Accessed
13th December 2009].
24. Google Finance. Available at: < http://www.google.com/finance?
client=ob&q=NYSE:IBM > [Accessed 13th December 2009].
23
10. APPENDIX
24
Fig 3: Return on Equity (%)
25
Fig 5: Current Ratio
CURRENT RATIO(MRQ)
8,76
2,65
1,59 1,95 1,26
1,15
Y
0
R
G
L
T
50
M
ST
SF
O
R
IB
P
U
O
M
S&
D
IN
26
Fig 7: Return on Assets – ROA
100,00%
MSFT
50,00% GOOG
0,00% IBM
3 ORCL
200 2005 007 Q Industry
2 MR
S&P500
27
Fig 9: Historical Earnings Per Share - EPS
HISTORICALEPS:1999/2008
14
12
10 MSFT
8 IBM
6 ORCL
4 GOOG
2
0
1999
2000
2006
2001
2002
2003
2004
2005
2007
2008
28
COMPANY PRICE OF SHARE IN US $
MSFT 29.85
IBM 129.68
ORCL 22.78
GOOG 590.51
29