Mr nadella has outlined some first principles based

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Mr. Nadella has outlined some first principles based on his vision for Microsoft as a productivity and platform company for the “mobile-first, cloud-first world.” His ambition is for Microsoft to “change the nature of work through digital technology.” This means putting Microsoft at the center of business process transformation through Microsoft products that improve productivity and security while also providing hybrid cloud and AI and “intelligent edge” platforms. He has refocused the company on investments in core productivity experiences and platform development. We think that this means business systems like the company’s Azure cloud service, Dynamics 365, and SQL Server as well as the traditional stalwarts Windows and Office. He also plans to eliminate duplicative products. Other than the Surface tablet/laptop, we think that Microsoft has given up on its mobile strategy. In the Productivity and Business Processes division, first-quarter revenue rose 25% from the prior year to $8.95 billion; some 15 percentage points of this growth came from the LinkedIn acquisition, though legacy product growth was also reasonably strong, with 10% growth in Office Commercial products, 12% growth in Office Consumer Products, and 10% growth in Dynamics. Segment operating income rose 9%, to $3.4 billion, including amortization charges related to the LinkedIn acquisition. Excluding LinkedIn, pro forma operating income would have grown 11%. The Intelligent Cloud Division exhibited another quarter of strong growth, with total revenue rising 15% from the prior year to $7.8 billion. Within this division, Azure cloud revenue rose 99%. Server products and cloud services revenue rose 18% as enterprise services rose 5%. Operating income rose 24% to $2.8 billion. In the More Personal Computing segment, 2Q revenue rose 2% to $12.2 billion, driven by growth in the Gaming and Search business. Microsoft released an update to its Xbox gaming console, the Xbox One X, in November 2017. Xbox Live active users continued to grow, rising 7% year-over-year in the December quarter. Microsoft’s Windows OEM business grew 4% in 2Q18, again topping the 0.7% increase in the overall PC OEM market, according to industry tracker International Data Corp. Growth was again driven by the business-oriented Windows Pro subsegment, with a gain of 11%, while non-Pro subsegment revenue fell 5%. Segment operating income declined 2% to $2.5 billion. FINANCIAL STRENGTH & DIVIDEND Our financial strength rating for Microsoft is High, the top of our five-point scale. Microsoft took on $31 billion in incremental debt in 1H17 to finance the LinkedIn acquisition. Total debt now stands at $85.8 billion, of which $12.5 billion is current. Microsoft still has an extremely large cash and short-term investment balance of $143 billion. Trailing 12-month free cash flow rose 20% in FY17 to $33 billion. Microsoft is triple A-rated by the credit agencies and outlooks are stable. Moody’s raised its outlook to stable in December 2017.
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