Microsoft Corporation (MSFT-US): Hyperion’s Monthly Portfolio Holding Focus

Portfolio Holding Focus: Microsoft Corporation (MSFT-US)

Microsoft Corporation is a household name in IT and particularly software. Its business consists of developing, licensing, and supporting a wide range of software products, services and devices. Broadly speaking, Microsoft’s products and services fall into three categories.

Intelligent Cloud, which is responsible for servers (public, private and hybrid) and cloud services used by businesses. Products include Microsoft SQL Server, Windows Server, Visual Studio Azure among many others. Business services include Premier Support Services and Microsoft Consulting Services.

Productivity and Business Processes, which includes productivity, communication and information based products and services, such as Office 365, Dynamics 365, and LinkedIn.

More Personal Computing, which includes products and services aimed at consumers, software developers, and IT professionals. Products include Microsoft Surface, PC accessories and a wide range of intelligent devices. Gaming, including Xbox Hardware and Xbox Live also falls under personal computing, as does Bing search advertising and Windows.

Hyperion’s View:

Microsoft is a highly innovative, versatile and well-managed business.

It is the dominant market player in productivity software applications for business, and its Windows operating system also dominates the global PC market.

Looking forward, Microsoft’s commercial cloud business, which includes Office 365, Dynamics 365 and Azure, is well-positioned to benefit from global growth in the use of cloud-based applications and technology – making it an attractive business with a sustainable competitive advantage and the ability to grow organically.

Microsoft’s CEO Satya Natella is a talented and effective leader. He has improved the company’s culture and been instrumental in focusing the business on the rapidly expanding commercial cloud business.

This has been (and continues to be) a highly successful strategy, because business processes are becoming increasingly digitalized, which has led to the rapid adoption of integrated cloud-based systems which combine business management and productivity tools into one platform. Microsoft’s superior hybrid cloud offering, Azure, has established a strong competitive advantage in this space.

CEO Natella is supported by a high-calibre management team who we believe will continue to successfully implement the company’s strategy of focusing on the profitable commercial cloud business proposition.

For this reason, we expect that the commercial cloud business will drive revenue and profit growth over the next 5-10 years and that Microsoft’s strong market position and appeal to customers will continue, based on three things.

  1. The strong levels of trust associated with the Microsoft brand
  2. The large scale of Microsoft’s cloud infrastructure; and
  3. Windows, the operating system which offers businesses a range of productivity tools and has been at the core of business enterprises for decades.
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