presented by: samantha brown. areas of disscusion: current performance present strategy performance...

MICROSOFTGLOBALIZATION OF THE INDUSTRY

Staying Competitive in a Highly Evolving Industry

PRESENTED BY:Samantha Brown

Summary

AREAS OF DISSCUSION:

Current Performance

Present Strategy

Performance Targets

Financial / Strategic Performance

This presentation will discuss the present state of business affairs of Microsoft Corporation in comparison with its it closest competitors as well as provide a set of considerations and recommendation in each targeted area

that will aid the company in it quest to remain relevant.

(Cartoon Courtesy of DenverPost.com)

StrengthsBrand Loyalty

Brand ReputationSoftware

Acquisition of Skype WeaknessesSlow to innovationMature PC Market

Product Security FlawsPoor Investments

OpportunitiesExpansion into GamingCloud Based Services

Expansion into Mobile DevicesGrowth via Acquisitions

ThreatsConsumer needs &

Preferences ChangesLawsuits (anti trust /

developer)Competition in

SoftwareSale in Substitute

Products

SWOT

SWOT Analysis for MS

(Microsoft, 2013)

Present Strategy

Past Strategy• The past strategy was based on a old past

vision “A personal computer in every home”

• Company had only one real competitor (IBM). IBM supplied the PC and MS provided the OS

• Cashed in on low barging power of customers, customer had no choice in OS (pre-installed)

• Little to no threat for substitutions

• Eventually deemed as a Monopoly

*All of these are no longer a factor.*

Present StrategySingle Strategy: “One Microsoft” the product lines will be viewed as a whole not as individual divisions. The single core strategy will ensure that there is shared goal throughout the company.

Executing Innovation: Executing innovation ahead of the competition is the main factor

Expansion: Open a new device and service chapter. Moving to develop continuous product cycles which bring consistent user interfaces to PC, tablets, phones and gaming systems.

Mobility: Creating a family of devices that will empower the consumer at home, at work, and on the go with the digital activities that are most valued.

Microsoft Strategy

Current Performance

Microsoft is a well known company specifically for its software and virtual services such as Bing and Skype

Company Microsoft Corporation

Industries Served

Computer Software, Electronics

Geographical area

Worldwide

Headquarters United States

Current CEO Steve Ballmer

Revenue $77.8 billion

Profit $17.98 billion

Employees 99,000

Main Competitors

Apple, Google, Samsung, IBM

• Profitable yet stagnant in the last 10yrs

• Window OS provides 75% of profits

• MS is not a hardware company, but rely on the PC for its sales

• Less than 25% profits comes from servers and tools

• The PC, their main target, is on a steady decline.

• Focuses are now on smart phones and tablets – not MS specialty

• Consistently losing relevancy

Competitors:

Apple, Google, Oracle Corp, IBM , Sap AG, CA Tech,

Current Performance cont.

Recommendation:Differentiation Strategy

• Change in long-term industry growth rate

• Emerging of new internet capabilities and

application

• Technological change and manufacturing

process innovation

• Product and marketing innovation

• Highlighting skills and expertise of

company personnel

Performance Targets

Performance Targets 2014

Licensing $5.2 – 5.4 Bill PC business will be stable

Hardware 35 – 45%$3.8 – 4.1 Bill

Xbox One – Xbox Products

Devices and other CS $1.7 – 1.8 Bill

Commercial 9 – 11% Low cost added value products

Commercial Licensing $10.7 – 10.9 Bill

Software

Commercial Other $1.7 – 1.9 Bill Cloud services

Operating Expenses 6 – 8%$8.5 – 8.6 Bill

Quarterly

Capital Expenditures $6.5 Bill

Tax Rate 18 – 20% Dependent on geographical mix of earnings

Performance Targets Recommendations

There can be a horizon in the future of Microsoft if the performance goals or met and or exceed. Actions must be taken to ensure a successful

outlook :

The formulation of Gesture Recognition Technology

Expand the company’s Cloud Services

Provide Unification for Devices

Partnering with other companies such as Toyota

Financial / Strategic Performance

• Microsoft financials in the last decade has been varied

• Great Recession – greatly affect MS share price (from $35 - $25 per share)

• The total revenue from 2002 to 2013 has doubled over ($28.4 to $77.85 B)

• Microsoft OS and the introduction of the Xbox gaming system supported their revenue over these years

Financial / Strategic Performance

Annual Earnings Per Share

• Best performances are generally prior to December. MS EPS is stable compared to its closest competitors

• MS achieved good results while continuing to increase their dividends from year to year

Sept. 30, 2013 0.62

June 30, 2013 0.57

March 31, 2013 0.72

Dec. 31, 2012 0.76

Sept. 30, 2012 0.53

June 30, 2012 -0.059

March 31, 2012 0.60

Dec. 31, 2011 0.78

Sept. 30, 2011 0.68

June 30, 2011 0.69

March 31, 2011 0.61

Dec. 31, 2010 0.77

Sept. 30, 2010 0.62

June 30, 2010 0.51

Annual Earnings per Share

(Microsoft EPS, 2013)

RETURN ON EQUITY INVESTMENT

ROE TrendsSept. 30, 2013 29.89%

June 30, 2013 30.08%

March 31, 2013 23.23%

Dec. 31, 2012 22.70%

Sept. 30, 2012 23.99%

June 30, 2012 26.90%

March 31, 2012 38.56%

Dec. 31, 2011 41.53%

Sept. 30, 2011 44.24%

June 30, 2011 45.91%

• The past economic crisis had a great affect the on the ROE

• Stocks were at an historic low to include MS

• Recent MS strategic acquisitions were not recorded or calculated

• The increase in dividends with the acquisitions strengthened the organization; it is not reflected in the given numbers

Return on Equity Investment

(Y Chart, 2013)

Stock prices have be constantly flat, but high

2013 MS had a 42% gain

Compared to peers, MS’s stock has acted anomalously

High prices are due to stock market is generally high

Shareholders are applauding MS for strategic risks

Stock prices look to continue prices based on shareholders demand

Year:

2013 - $33.00

2012 - $29.50

2011 – $25.00

2010 – $21.50

2009 - $22.00

2008 - $23.50(MSFT Monthly Historical Prices, 2013)

End Of Year Stock PricesEnd of Year Stock Prices

Financial & Strategic Recommendations

MS could continue to increase their dividend and share repurchase plan to:

Continue to return cash to MS shareholders

Appeal to shareholders that are seeking long-term steady growth and benefit from

quarterly dividends

Solidify shareholder’s loyalty and encourage future holdings

(Amin, 2013)

Financial & Strategic Recommendations cont.

Cost-efficient Acquisition Operations:

Demonstrate growth potential over short-term profitability

This recommendation is an alternative to the first and could possibly be considered a contradiction. However, given the size and girth of their competitive landscape, MS may be at a competitive disadvantage (long-term) if they continue to play it safe.

(Ong, 2013)

Annual Credit Rating

• Scored consistently, the highest credit rating given: “AAA” (2008-2013)

• The capital structure of the company allows it to maintain this rating

• Was the first company to achieve this rating in a decade

Recommendation:

The company should maintain their actions in reference to the credit rating.

MS maintains its equity and keeps debts low which in turn, produces a spectacular credit rating.

Annual Credit Rating

16.30%

83.70%

(Late 2013) Microsoft Capital Structure

Debt Equity

Debt vs Assets

Debt vs Equity

Assets vs Liability

Debt / EBITDA

CF / Total Debt

0.11

0.2

2.87

0.49

1.79

0.17

0.27

2.75

0.830000000000001

0.690000000000001

-0.06

-0.07

0.12

-0.34

1.07

Debt RatiosCompared to industry Industry MSFT

(Morning Star, 2013)

Annual Image Rating

MS is being labeled as “old” (synonymous with Bill Gates)

MS maintains a steady image, but the consumer sometimes seems uninterested in the company

Recommendations

Company’s Face: Introduce a fresh new face

Company Logo: Consider sponsoring a logo contest that incorporates the iconic color blocks, but more appealing to the new technological generation

Customer Support: Reevaluate customer support services to ensure a satisfactory experience

Corporate Responsibility: Incorporate programs that demonstrate MS dedication the public and the environment

Annual Image Rating

2008 2009 2010 2011 2012 20150123456789

Fortune Image Rating

(CNNMoney, 2013)

Annual Image RatingConclusion

Microsoft is and has always been a strong company. It has in some cases lagged behind, but is taking steps to improve its situation. With the appropriate plans and strategic moves, the company may be able to regain it shine in the

industry and the world.

Annual Image RatingReferences

• Amin, S. (2013 September 17 ). Microsoft Continues $40 Billion Share Repurchase Program; Increases Quarterly Dividend 22%. In Microsoft News. Retrieved from http://microsoft-news.com/microsoft-continues 40-billion-share-repurchase-program-increases-quarterly-dividend-

• CNNMoney. (2012). World’s Most Admired Companies. Retrieved from: http://money.cnn.com/magazines/fortune/most-admired/2012/snapshots/3063.html

• Microsoft. (2013). Annual Report. Retrieved from http://www.microsoft.com/investor/reports/ar13/index.html

• Microsoft. (2013). Our Commitment to Citizenship. Retrieved from: http://www.microsoft.com/about/corporatecitizenship/en-us/reporting/

• Morningstar. (2013). Microsoft Corporation MSFT. Retrieved from: http://quicktake.morningstar.com/StockNet/bonds.aspx?Symbol=MSFT&country=USA

• Ong, J. (2013 January 30 ). Google, Facebook led private tech M&A activity in 2012 as companies spent $46.8b on over 2,200 deals. In TNW News. Retrieved from http://thenextweb.com/insider/2013/01/30/google-and- facebook-led-private-ma-activity-in 2012-as-companies-spent-46-8b-on-over

• Y Charts. (2013 November 20). Microsoft Historical Return on Equity. Retrieved from: http://ycharts.com/companies/MSFT/return_on_equity