Financial Analysis of the Microsoft Corporation
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Financial Analysis of the Microsoft CorporationMicrosoft Corporation (MSFT) – NYSEOne Microsoft Way Redmond, WA 98052-73291-800-MICROSOFT (1-800-642-7676)Barry T. CobbsOctober 12, 2016Webster UniversityBUSN 5200Dr. SnyderPART ONE – COMPANY OVERVIEWBrief description of the company The Microsoft Corporation, listed as MSFT on the New York Stock Exchange (NYSE), is the world leader in computer software systems. Approximately ninety-one percent of the computers in operation today are running some type of Microsoft Windows operating system (Net Market Share, 2016). If you ever want to start a fight without bringing up religion or politics, ask a bunch of computer geeks which company is better Microsoft or Apple? Step back and watch the festivities begin. Company history Founded in Albuquerque, New Mexico in 1975, Microsoft started as a loose partnership between childhood friends William Henry “Bill” Gates III and Paul G. Allen who co-wrote a computer programming language for use on Altair hobby kit personal computer (Thompson, 2015). The name Microsoft was derived from combining the words microcomputer and software (Hall & Zachary, 2015). Gates and Allen got their first big break in 1980 when International Business Machines (IBM) asked Microsoft to produce an operating system for their first line of personal computers, the IBM PC (Hall & Zachary, 2015). In what would become a standard business practice in later years, Microsoft purchased an operating system from another company, tailored it for the IBM PC and renamed it MS-DOS (Microsoft Disk Operating System) (Hall & Zachary, 2015). After IBM released the IBM PC in 1981, other personal computer manufactures began to approach Microsoft about licensing their operating system. “On March 13, 1986, Microsoft had a highly successful initial public offering (IPO) at an offer price of $21. By the end of the day, the stock price had risen to $35.50, and Bill Gates made the headlines as the wealthy owner of 45 percent of the corporation’s stock. (Shirvani & Wilbratte, 1986)” By the mid 1990’s, Microsoft had defeated most of its operating system competitors selling over one hundred million copies of its MS-DOS operating system (Hall & Zachary, 2015). This gain Microsoft the distinction of being one of the most powerful and profitable companies in U. S. history. With the release of Windows 3.0 in 1990 and succeeding operating systems, Microsoft was selling over one million copies a month dominating the world’s PC operating system market (Computer Hope, n.d.) (Hall & Zachary, 2015). All of Microsoft’s success did not come without its fair share of controversy. Rapid growth in a tremendously competitive and fast-changing industry generated bitterness and jealousy amongst its competitors, some of whom complained that the company’s practices violated U.S. laws against unfair competition. Microsoft spent years defending itself in court. Finally, in 1994, a U.S. Justice Department investigation concluded with a settlement in which Microsoft agreed to change some of its sales practices that the government alleged enabled the company to unfairly discourage consumers from trying alternative operating system programs (Hall & Zachary, 2015).
In 2001 Microsoft released the Xbox, an electronic game console that quickly captured second place in the video gaming market (Hall & Zachary, 2015). I still remember standing in a long line at Best Buy trying to ensure my eight-year-old son had a very Merry Christmas. Microsoft released Xbox 360 much to the chagrin of parents of teenage boys everywhere in 2005 (Lazy Gamer, 2014). However, in a very competitive video game console market, where the Xbox faced strong pressure from the Nintendo Wii (my wife and I actually bought one of these for ourselves) and Sony PlayStation (which my son also owned), Microsoft struggled to make consistent profits from its console (Hall & Zachary, 2015). Microsoft actually had to cut the price of the Xbox 360 Elite by as much as twenty-five percent in order to pick up market share. While the move was considered successful because by 2010 the Xbox 360 was the most-used video game console in the American homes. The price cuts also led to a 6 percent drop in revenue in Microsoft’s Entertainment and Devices Division (EDD) (Hall & Zachary, 2015). In 2006, Microsoft attempted to challenge Apple’s iPod dominance with the Zune portable media player, the venture failed horribly and the Zune died in 2015 (Mchugh, 2015). Despite its problems in the in the marketplace, Microsoft still remains the dominant supplier of computer operating systems. Windows held a worldwide market share of 86 to 92 percent, depending on the research analysis (Net Market Share, 2016). With the release of Windows 10, the replacement for Windows 7 and 8 critical praise by reviewers and analysts, Microsoft’s lead remained intact (Leonhard, 2016).Organization Microsoft is a publicly traded corporation. The company has a board of directors with Satya Nadella as the Chief Executive Officer (CEO). Microsoft has a Divisional organizational structure based on different products and services and just went through a major reorganization last year.PART II, FINANCIAL ANALYSIS: Sales and Income Record:Fiscal YearsU.S Dollars in millions20122013201420152016Sales$73.75B$77.65B$86.73B$92.97B84.7BPercent change in sales each yearn/a5.2911.697.20-8.90Net Income16.98B21.86B22.07B12.19B16.8BPercent change in net income each year-28.77%0.97%-44.76%37.77%[pic 1] From 2012 to 2015 Microsoft enjoyed an increase in sales of slightly over eight percent. Microsoft’s sales have decline in 2016, in part to its disappointing run with mobile investments. If you have ever tried using a Windows Phone you know why. The Windows Mobile ‘Phone’ is horrible and accounts for a seventy-one percent decrease in revenues (Zafar, 2016). It appears Apple’s iPhone and Samsung’s Galaxy Note, have a firm grasp on the cell phone market. If we are lucky, we should not hear any more talk about Windows Mobile in the future.