Microsoft ()
Microsoft (MSFT) is expected to unveil a business reorganization plan on July 5 that — according to Bloomberg — not only will shift the company to a cloud-first organization, but also help Microsoft's sales teams improve their ability to sell cloud software.
As with previous re-orgs — conducted in 2013, 2015, and 2016 — which shared similar timing with this announcement, this shakeup will reportedly include job cuts, which could impact the company’s local marketing efforts in certain countries. But these types of near-term disruptions have become commonplace at Microsoft under CEO Satya Nadella, who has shown to be unafraid to overhaul business units, not to mention letting go the people leading them, in order to meet the company’s operating objectives.
And if judging by Microsoft’s stock price over the past five years (up 125.34%), during which the shares have risen by an average of 25%, Nadella’s goal of injecting fresh blood into key divisions have paid off handsomely. And given the rate at which Microsoft’s cloud apps and Azure, its cloud service, are now accounting for a sizable portion of its sales — at 34% among enterprises, up from 20% last year — Nadella wants to mash the accelerator.
Despite the rise of Azure, Microsoft still trails Amazon's (AMZN) Amazon Web Services (AWS) cloud business, which remains the industry's top platform, generating $3.7 billion revenue in 2016. That revenue total puts AWS well ahead of the next five competitors combined, including Alphabet (GOOGL).
But Microsoft may not play second fiddle anymore, assuming the re-org achieves the efficiency with which Microsoft's sales teams can sell cloud software.
Last month, in a research note to investors, Brent Bracelin, analyst at Pacific Crest Securities, predicted Azure could surpass AWS in revenue this year, which would mark the first time Azure — once a laggard — would transition into a cloud leader. Coming to this conclusion upon assessing the market dynamics of the sixty-largest cloud computing companies, Bracelin touted Microsoft as having “unmatched product depth and breadth.”
Combined with the company’s strength in software as a service, platform as a service and infrastructure as a service, the analyst believes Microsoft could realize the biggest benefit among its competitors in a cloud market he believes could explode to almost $240 billion in the next of five years. And this explains why Nadella is willing to double down on his company’s cloud investments, though it may invite some near-term disruptions.
Fresh off a 11% rise in its Intelligent Cloud business in the fiscal third quarter, during which products and cloud services revenue grew 15%, thanks to 93% surge in Azure cloud revenue growth, customers — whether large multi-nationals, small and medium businesses to non-profits — are placing even more trust on Microsoft’s Cloud. And that makes it an ideal time for Nadella, who has pushed all of the right buttons since his arrival, to strengthen the company’s position by unveiling another reorganization.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
