msft presentation - team b
TRANSCRIPT
SkyDrive
Start Team B
Overview
Overview Why buy? Valuation Risks Summary
Microsoft Products Khalil Abdulnour
Overview Why buy? Valuation Risks
Microsoft Ecosystem Khalil Abdulnour
Tablet
Cloud Phone
Skype
Summary
Overview Why buy? Valuation Risks
Recommendation & Highlights Khalil Abdulnour
Feb-12
Feb-12
Mar-1
2
Mar-1
2
Mar-1
2
Apr-12
Apr-12
Apr-12
May-1
2
May-1
2Jun-12
Jun-12Jun-12
Jul-12Jul-1
2
Aug-12
Aug-12
Aug-12
Sep-12
Sep-12
Oct-12
Oct-12
Oct-12
Nov-12
Nov-12
Dec-12
Dec-12
Dec-12Jan-13
Jan-13Jan-13
Feb-13
Feb-13
$-
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
Target
Current
Earnings Release Upside Potential: 46%
Dividend Increase
Windows 8 Launch
1. New Markets2. Cross Selling Opportunities3. Attractive Dividend Yield
Price Target: $40.02
Summary
SkyDrive
Start Team B
Why Buy?
Overview Why buy? Valuation Risks
Smartphone Shipments
Tablet Shipments
2010 2011 2012 2013E 2014E 2015E 2016E0
200
400
600
800
1000
1200
1400
1600 Global Mobile Shipments (millions)
Booming Mobile Demands Richard Jimenez
80% of IT spending is driven by enterprises
Bring Your Own Device trend:• 94% of organizations to have established
BYOD policy by end of 2013
Apple + Google devices conflict with established Windows infrastructure
Businesses have high demand for mobile:
Summary
Overview Why buy? Valuation RisksWhy buy?
Productivity Advantages• Complete Microsoft Office• Full PC Functionality
Compatibility with Existing Systems
Integration into Ecosystem
Variety of OEM Support
Productivity Appeal Richard Jimenez
Microsoft products have competitive advantage:
Summary
Overview Why buy? Valuation Risks
Windows Azure Richard Jimenez
Microsoft Security Advantages
• Interview with German IT Expert: • “Strict adherence to data protection
procedures”• “MS is taking privacy and data
protection seriously, where as Google etc. are really not”
• For Example: Physical destruction of defective hard drives
• IT Consultants: “Enterprises love Azure for Security”
Businesses prefer Azure because of superior security:
Biggest Cloud Concerns
Summary
Overview Why buy? Valuation Risks Conclusion
Ecosystem Richard Jimenez
SkyDrive
Start Team B
Financial Analysis and Valuation
Financial Analysis
Overview Why buy? Valuation Risks
Mariusz Brzyzek
Summary
2012A 2013F 2014F 2015F 2016F 2017F -
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Free Cash Flow 1.9% CAGR 2012-2017
$29,197 $22,645 $25,581 $29,519 $31,051 $32,074
Overview Why buy? Valuation Risks
Research and Development Mariusz Brzyzek
Summary
Fiscal year 2012
R&D Spending
$9.81 billion
Microsoft
$3.38billion
Apple$6.59billion
Acquisitions
Overview Why buy? Valuation Risks
Mariusz Brzyzek
Summary
Increasing Dividends
Overview Why buy? Valuation Risks
Mariusz Brzyzek
Summary
2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F 2016F 2017F $-
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
Dividends per share
$.35 $.40$.44
$.52 $.52
$.64
$.80
$.92$.98
$1.05 $1.11$1.19
3.3% Current Dividend Yield15% 5 year CAGRDividends Per Share
Share Repurchases
Overview Why buy? Valuation Risks
Mariusz Brzyzek
Summary
Jan-
30-2
008
Mar
-18-
2008
May
-05-
2008
Jun-
20-2
008
Aug-0
7-20
08
Sep-2
4-20
08
Nov-1
0-20
08
Dec-2
9-20
08
Feb-1
7-20
09
Apr-0
3-20
09
May
-21-
2009
Jul-0
9-20
09
Aug-2
5-20
09
Oct-1
2-20
09
Nov-2
7-20
09
Jan-
15-2
010
Mar
-05-
2010
Apr-2
2-20
10
Jun-
09-2
010
Jul-2
7-20
10
Sep-1
3-20
10
Oct-2
8-20
10
Dec-1
5-20
10
Feb-0
2-20
11
Mar
-22-
2011
May
-09-
2011
Jun-
24-2
011
Aug-1
1-20
11
Sep-2
8-20
11
Nov-1
4-20
11
Jan-
03-2
012
Feb-2
1-20
12
Apr-0
9-20
12
May
-24-
2012
Jul-1
2-20
12
Aug-2
8-20
12
Oct-1
5-20
12
Dec-0
4-20
12
Jan-
23-2
013
8.00b
8.20b
8.40b
8.60b
8.80b
9.00b
9.20b
9.40b
Shares Outstanding
$5.6 of $40 billion left
(In millions)Three Months Ended
December 31,
Six Months EndedDecember 31,
2012 2011 2012 2011
Shares of common stock repurchased 58 39 91 78 Value of common stock repurchased $ 1,607 $ 1,000 $ 2,607 $ 2,000
Sum of Parts DCF
Model
PER Model
Price Target
70 %
30 %
Overview Why buy? Valuation Risks
Valuation Mariusz Brzyzek
Summary
Price Target$43.51
Overview Why buy? Valuation Risks
2012A 2013E 2014E 2015E 2016E 2017ETerminal
Value
Free cash flow 29,197 22,645 25,581 29,519 31,051 32,074 357,422
Valuation: DCF Mariusz Brzyzek
Summary
Price Target$31.85
2012 A 2013 F 2014 F 2015 F 2016 F 2017 FNet Income 16,978 22,295 23,659 25,362 26,788 28,511
15.00 €
20.00 €
25.00 €
30.00 €
35.00 €
40.00 €
45.00 €
50.00 €
P/E Band
16x
14x
12x
10x
8x
Microsoft
Overview Why buy? Valuation Risks
Valuation: PER Mariusz Brzyzek
Summary
DCF Model
PER Model
Price Target
70 %
30 %
$43.51
$31.85
$40.02
Overview Why buy? Valuation Risks
Valuation Mariusz Brzyzek
Summary
SkyDrive
Start Team B
Risks
Competition among ecosystemsCompetition among ecosystems
Overview Why buy? Valuation Risks
Risks
Extensive range of firms
Vilma Solano
Summary
Acquisitions
Overview Why buy? Valuation Risks
Risks
New products and services
Acquisitions
Vilma Solano
Summary
Overview Why buy? Valuation Risks
EconomyGlobal Business Vilma Solano
InflationRecession
Summary
SkyDrive
Start Team B
Summary
Overview Why buy? Valuation Risks
Field Work Max Felderhoff
Field Work
Summary
Overview Why buy? Valuation Risks
Sensitivity Analysis Max Felderhoff
Terminal Value Perpetuity Growth Rate
Cost of Equity
-1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
Terminal Value Perpetuity Growth Rate
Cost of Equity
-1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00%
7.0% $ 41.75 $ 42.62 $ 43.62 $ 44.76 $ 46.10 $ 47.69 $ 49.59
7.5% $ 40.50 $ 41.26 $ 42.12 $ 43.10 $ 44.23 $ 45.55 $ 47.11
8.0% $ 39.38 $ 40.04 $ 40.78 $ 41.63 $ 42.59 $ 43.70 $ 45.00
8.5% $ 38.35 $ 38.93 $ 39.58 $ 40.32 $ 41.15 $ 42.10 $ 43.19
9.0% $ 37.41 $ 37.92 $ 38.50 $ 39.14 $ 39.86 $ 40.68 $ 41.61
9.5% $ 36.54 $ 37.00 $ 37.51 $ 38.07 $ 38.70 $ 39.41 $ 40.22
10.0% $ 35.74 $ 36.15 $ 36.60 $ 37.10 $ 37.66 $ 38.28 $ 38.98
Terminal Value Perpetuity Growth Rate
Cost of Equity
-1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00%
7.0% $ 41.75 $ 42.62 $ 43.62 $ 44.76 $ 46.10 $ 47.69 $ 49.59
7.5% $ 40.50 $ 41.26 $ 42.12 $ 43.10 $ 44.23 $ 45.55 $ 47.11
8.0% $ 39.38 $ 40.04 $ 40.78 $ 41.63 $ 42.59 $ 43.70 $ 45.00
8.5% $ 38.35 $ 38.93 $ 39.58 $ 40.32 $ 41.15 $ 42.10 $ 43.19
9.0% $ 37.41 $ 37.92 $ 38.50 $ 39.14 $ 39.86 $ 40.68 $ 41.61
9.5% $ 36.54 $ 37.00 $ 37.51 $ 38.07 $ 38.70 $ 39.41 $ 40.22
10.0% $ 35.74 $ 36.15 $ 36.60 $ 37.10 $ 37.66 $ 38.28 $ 38.98
Summary
30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 530%
2%
4%
6%
8%
10%
12%
14%
16%
Overview Why buy? Valuation Risks
Monte Carlo Simulation Max Felderhoff
Target Price Distribution
Summary
SkyDrive
Start Team B
Thank you!Q & A
Altman Z Score of MSFT over time, + vs Competitors
Balance Sheet Beta Calculation Capital Structure Breakdown Cash Balance Cloud Costs Cloud Gross Margin Cloud Revenue Cloud Services Correlation with Europe Correlation with US Cost of Equity Debt Structure Breakdown Economic Outlook Forecast Regression Forecasted EPS + DPS Geographic Segments Global Correlation Hedging strategy
Income Statement Lawsuits Main Competitors Margins compared to competit
ors Market Shares Montecarlo Analysis Multiples
compared to competitors Net Working Capital Chart Office Timeline Online Service Division Ownership summary PC Penetration Piracy Rates – BRIC Price to Earnings Pricing - Office Projected Growth Projections by Segment Public Cloud Concerns Ratios
Recent Events and Aquisitions Return on Equity Revenue by segment Revenue Growth Forecasts Risk Categories Risk Matrix Seasonality in Microsoft's Sales Security – Cloud Security - Windows Sensitivity Analysis Server and Tools TImeline Shift from PCs to Mobile Statement of Cash Flows Street Consensus Supply Chain - Customers Surface Production Tablet Shipments Terminal Value Assumptions Top Holders Valuation Windows Timeline Windows Phone Market Share
Overview Why buy? Valuation Risks
Appendix
Summary
6.2% Projected Revenue CAGR 2012-2017 2012 A 2013 F 2014 F 2015 F 2016 F 2017 F
73,723 77,654 83,607 88,828 94,324 99,592
5.5% Projected EBITDA CAGR 2012-2017 2012 A 2013 F 2014 F 2015 F 2016 F 2017 F
30,714 31,402 33,349 35,692 37,697 40,067
10.9% Projected Net Income CAGR 2012-2017 2012 A 2013 F 2014 F 2015 F 2016 F 2017 F16,978 22,295 23,659 25,362 26,788 28,511
Projected Growth
2010 2011 2012 2013 F 2014 F 2015 F 2016 F 2017 F -
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
Total Revenues
EBITDA
Net Income
Appendix
Multiples vs. Competitors
Jan-31-2012
Feb-27-2012
Mar-25-2012
Apr-21-2012
May-18-2012
Jun-14-2012
Jul-11-2012
Aug-07-2012
Sep-03-2012
Sep-30-2012
Oct-27-2012
Nov-23-2012
Dec-20-2012
0.00x
5.00x
10.00x
15.00x
20.00x
25.00x
P/LTM EPS
MSFTAAPLINTCGOOGORCLQCOM
Feb-01-2012
Mar-01-2012
Apr-01-2012
May-01-2012
Jun-01-2012
Jul-01-2012
Aug-01-2012
Sep-01-2012
Oct-01-2012
Nov-01-2012
Dec-01-2012
Jan-01-2013
0.00x2.00x4.00x6.00x8.00x
10.00x12.00x14.00x16.00x
EV/EBITDA
MSFTAAPLINTCGOOGORCLQCOM
Jan-31-2012
Feb-28-2012
Mar-27-2012
Apr-24-2012
May-22-2012
Jun-19-2012
Jul-17-2012
Aug-14-2012
Sep-11-2012
Oct-09-2012
Nov-06-2012
Dec-04-2012
Jan-01-2013
0.00x
5.00x
10.00x
15.00x
20.00x
25.00x
30.00x
35.00x
P/ LTM Normalized EPS
MSFTAAPLINTCGOOGORCLQCOM
Appendix
Margins vs. Competitors
20022003
20042005
20062007
20082009
20102011
2012 0.0%
10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%
Gross Margin
Microsoft
Competitors Average
20022003
20042005
20062007
20082009
20102011
2012 0.0% 5.0%
10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0%
EBIT Margin
Microsoft
Competitors Average
20022003
20042005
20062007
20082009
20102011
2012 0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
Net Income Margin
Microsoft
Competitors Average
Appendix
Terminal Value Assumptions
Perpetuity
.5%
EBITDA Multiple
8
50 %
50 %
Terminal Value
2017FCF (1+.005)(.0868-.005)PV2017=
2017FCF= 32,074$
PV2017= 273,315$
0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 800
10
20
30
40
50
60
70
2012 Acquisitions EBITDA Multiples
EBITDA Multiple
Num
ber o
f firm
s
Appendix
Beta Calculation
-0.15 -0.1 -0.05 0 0.05 0.1 0.15
-0.15
-0.1
-0.05
0
0.05
0.1
0.15
0.2
S&P 500 geo Line Fit Plot
MSFT GeoPredicted MSFT Geo
S&P 500 geo
MSF
T G
eoSUMMARY OUTPUT
Regression StatisticsMultiple R 0.711546807R Square 0.506298858Adjusted R Square 0.506102477Standard Error 0.012093432Observations 2516
ANOVAdf SS MS F Significance F
Regression 1 0.37705719 0.37705719 2578.14945 0Residual 2514 0.367675263 0.000146251Total 2515 0.744732453
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%Intercept -6.05501E-05 0.000241123 -0.251117082 0.80174411 -0.00053337 0.00041227 -0.00053337 0.00041227S&P 500 geo 0.932491086 0.018364988 50.77548081 0 0.896479035 0.968503138 0.896479035 0.968503138
Appendix
Discount Rate
= 8.68%
RMSFT= .017+.93(.092-.017)
Discount Rate
Market return 9.20%
Beta 0.93
Risk premium 6.98%
Risk free rate 1.70%
Cost of Equity 8.68%
0 0.1 0.2 0.3 0.4 0.5
0.600000000000001
0.700000000000001 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.80.00%2.00%4.00%6.00%8.00%
10.00%12.00%14.00%16.00%
CAPM
Beta
Appendix
Income Statement
Forecasted Income Statement
(In $M, besides per share) 2010 2011 2012 2013F 2014F 2015F 2016F 2017F
Sales (Net) 62,484 69,943 73,723 77,654 83,607 88,828 94,324 99,592
Cost of Goods Sold 9,888 13,040 14,772 15,902 17,280 18,269 19,469 20,465
Gross Profit 52,596 56,903 58,951 61,752 66,328 70,559 74,855 79,126
Selling, General, & Admin Expenses 25,932 27,205 28,237 30,350 32,979 34,867 37,157 39,059
Operating Income Before Depreciation 26,664 29,698 30,714 31,402 33,349 35,692 37,697 40,067
Depreciation, Depletion, & Amortization 2,507 2,537 2,758 2,230 2,423 2,562 2,730 2,870
Operating Income After Depreciation 24,157 27,161 27,956 29,172 30,925 33,130 34,967 37,197
Interest Expense 151 295 380 380 380 380 380 380
Non-Operating Income/Expense 1,066 1,205 884 1,204 1,296 1,377 1,462 1,544
Special Items (59) - (6,193) (660) (711) (755) (802) (847)
Pretax Income 25,013 28,071 22,267 29,335 31,130 33,371 35,247 37,514
Income Taxes - Total 6,253 4,921 5,289 7,041 7,471 8,009 8,459 9,003
Net Income (Loss) 18,760 23,150 16,978 22,295 23,659 25,362 26,788 28,511
Common Shares Outstanding (In Millions) 8,813 8,490 8,396 8,416 8,416 8,416 8,416 8,416
Earnings per Share 2.13 2.73 2.02 2.65 2.81 3.01 3.18 3.39
Dividends 4,578 5,180 6,385 7,803 8,281 8,877 9,376 9,979
Dividend per share 0.52 0.64 0.80 0.92 0.98 1.05 1.11 1.19
Appendix
Balance Sheet
Appendix
Forecasted Balance SheetFiscal Year: 2010 2011 2012 2013F 2014F 2015F 2016F 2017FASSETS (In Million USD)Cash 5,505 9,610 6,938 8,797 8,977 9,029 9,054 9,006 Short Term Investments 31,283 43,162 56,102 46,881 50,848 54,483 58,351 62,164 Receivables - Total (Net) 13,014 14,987 15,780 17,333 18,707 19,948 21,264 22,549 Inventories - Total 740 1,372 1,137 1,148 1,138 1,108 1,069 1,018 Current Assets - Other 5,134 5,787 5,127 5,937 6,240 6,478 6,721 6,934 Current Assets - Total 55,676 74,918 85,084 80,095 85,911 91,045 96,459 101,672 Plant, Property & Equip (Gross) 16,259 17,991 19,231 24,980 28,215 31,402 34,854 38,403 Accumulated Depreciation 8,629 9,829 10,962 13,223 14,882 16,509 18,270 20,076 Plant, Property & Equip (Net) 7,630 8,162 8,269 11,757 13,333 14,893 16,584 18,327 Investments and Advances - Other 7,754 10,865 9,776 9,813 9,055 8,042 6,880 5,528 Intangibles 13,552 13,325 16,622 20,044 21,831 23,487 25,549 27,319 Assets - Other 1,501 1,434 1,520 1,641 1,960 2,289 2,353 2,715 TOTAL ASSETS 86,113 108,704 121,271 123,350 132,090 139,756 147,825 155,560 LIABILITIES (In Million USD) Accounts Payable 4,025 4,197 4,175 5,198 5,554 5,864 6,188 6,498 Accrued Expenses 3,283 3,575 3,875 3,977 4,399 4,802 5,235 5,673 Taxes Payable 1,074 580 789 351 376 398 421 443 Debt (Long-Term) Due In One Year - - 1,231 1,233 1,321 1,398 1,478 1,556 Other Current Liabilities 17,765 20,422 22,618 22,817 23,063 25,250 27,398 28,640 Total Current Liabilities 26,147 28,774 32,688 33,577 34,713 37,711 40,720 42,810 Long Term Debt 4,939 11,921 10,713 7,401 7,925 5,590 2,956 - Deferred Taxes (Balance Sheet) 229 1,456 1,893 1,925 2,062 2,182 2,307 2,428 Liabilities - Other 8,623 9,470 9,614 9,439 9,824 10,094 10,359 10,567 TOTAL LIABILITIES 39,938 51,621 54,908 52,343 54,524 55,577 56,343 55,805 SHAREHOLDERS' EQUITY Common Stock 54 52 52 53 57 60 63 67 Capital Surplus 62,802 63,363 65,745 65,673 66,814 67,471 68,169 69,288 Retained Earnings (Net Other) (16,681) (6,332) 566 5,282 10,696 16,648 23,249 30,401 TOTAL SHAREHOLDERS EQUITY 46,175 57,083 66,363 71,007 77,566 84,179 91,482 99,755 TOTAL LIABILITIES AND EQUITY 86,113 108,704 121,271 123,350 132,090 139,756 147,825 155,560
Statement of Cash Flows
Forecasted Statement of Cash Flows
(In Million USD) 2010 2011 2012 2013F 2014F 2015F 2016F 2017F
Net Income 18,760 23,150 16,978 22,295 23,659 25,362 26,788 28,511
Depreciation & Amortization 2,673 2,766 2,967 2,230 2,423 2,562 2,730 2,870
Other Non-Cash Adjustments 2,602 3,145 9,024 3,106 3,344 3,553 3,773 3,984
Changes in Non-Cash Capital 38 (2,067) 2,657 (1,487) (620) 1,474 1,408 565
Cash From Operations 24,073 26,994 31,626 26,145 28,807 32,951 34,699 35,930
Disposal of Fixed Assets - - - - - - - -
Capital Expenditures (1,977) (2,355) (2,305) (3,500) (3,226) (3,432) (3,648) (3,856)
Increase in Investments (30,168) (35,993) (57,250) (31,320) (26,647) (21,974) (17,301) (12,628)
Decrease in Investments - - -
Other Investing Activities 20,831 23,732 34,769 31,494 17,735 13,515 8,314 3,700
Cash From Investing Activities (11,314) (14,616) (24,786) (3,326) (12,139) (11,891) (12,635) (12,784)
Dividends Paid (4,578) (5,180) (6,385) (7,803) (8,281) (8,877) (9,376) (9,979)
Change in Short-Term Borrowings (991) (1,000) - 2 87 77 81
Change in Long-Term Borrowings 1,181 6,960 - (3,312) 524 (2,335) (2,634) (2,956)
Change in Capital Stocks (8,913) (9,116) (3,023) (9,847) (8,819) (9,872) (10,110) (10,258)
Other Financing Activities (29) 63 (104) - - - - -
Cash from Financing Activities (13,330) (8,273) (9,512) (20,960) (16,488) (21,008) (22,039) (23,194)
Net Changes in Cash (571) 4,105 (2,672) 1,859 180 52 25 (48)
Appendix
Key Financial RatiosKey Financial Ratios
2010 2011 2012 2013 F 2014 F 2015 F 2016 F 2017 F
Liquidity RatioCurrent Ratio 2.13 2.60 2.60 2.39 2.47 2.41 2.37 2.37Quick Ratio 2.10 2.56 2.57 2.35 2.44 2.38 2.34 2.35Cash Ratio 1.41 1.83 1.93 1.66 1.72 1.68 1.66 1.66
Efficiency RatioTotal Asset Turnover (x) 0.73 0.64 0.61 0.63 0.63 0.64 0.64 0.64Fixed Asset Turnover (x) 2.05 2.07 2.04 1.80 1.81 1.82 1.84 1.85Acc. Receivable Turnover (x) 4.80 4.67 4.67 4.48 4.47 4.45 4.44 4.42Days Sales Outstanding (days) 76.02 78.21 78.13 81.47 81.67 81.97 82.28 82.64Inventory Turnover (x) 84.44 50.98 64.84 67.64 73.46 80.20 88.20 97.84Days Inventory Outstanding (days) 27.32 38.40 28.09 26.35 24.04 22.13 20.05 18.15Payables Turnover (x) 15.52 16.66 17.66 14.94 15.05 15.15 15.24 15.33Days Payables Outstanding (days) 148.58 117.48 103.16 119.32 117.33 117.15 116.02 115.89Operating Cycle (days) 103.34 116.61 106.22 107.82 105.71 104.10 102.33 100.79Cash Cycle (days) -45.24 -0.86 3.06 -11.50 -11.62 -13.05 -13.69 -15.09
Profitability RatioGross Profit Margin 84.2% 81.4% 80.0% 79.5% 79.3% 79.4% 79.4% 79.5%EBITDA Margin 42.7% 42.5% 41.7% 40.4% 39.9% 40.2% 40.0% 40.2%EBIT Margin 38.7% 38.8% 37.9% 37.6% 37.0% 37.3% 37.1% 37.3%Net Profit Margin 30.0% 33.1% 23.0% 28.7% 28.3% 28.6% 28.4% 28.6%ROA 21.8% 21.3% 14.0% 18.1% 17.9% 18.1% 18.1% 18.3%ROE 40.6% 40.6% 25.6% 31.4% 30.5% 30.1% 29.3% 28.6%SG&A/Sale 41.5% 38.9% 38.3% 39.1% 39.4% 39.3% 39.4% 39.2%
Solvency RatioDebt Ratio 5.7% 11.0% 8.8% 6.0% 6.0% 4.0% 2.0% 0.0%Debt to Equity Ratio 86.5% 90.4% 82.7% 73.7% 70.3% 66.0% 61.6% 55.9%Equity Multiple (x) 1.86 1.90 1.83 1.74 1.70 1.66 1.62 1.56Long Term Debt Ratio (%) 5.7% 11.0% 8.8% 6.0% 6.0% 4.0% 2.0% 0.0%Interest Coverage Ratio (x) 159.98 92.07 73.57 76.77 81.38 87.18 92.02 97.89
Appendix
Ownership Summary
Ownership Summary
Institutions
Individuals/Insiders
VC/PE Firms
Public
Ownership Summary
Type Common Stock Equivalent Held
% of Total Shares Outstanding
Market Value (USD)
Institutions 5,669,508,757 67.69 155,883.10
Individuals/ Insiders 337,091,899 4.02 9,268.30
VC/PE Firms 436,911,775 5.22 12,012.90
Public 1,932,732,569 23.07 53,140.50
Total 8,376,245,000 100.00 230,304.90
Appendix
Sensitivity Analysis
Terminal Value Perpetuity Growth Rate
Cost of Equity
-1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00%
7.0% $ 41.75 $ 42.62 $ 43.62 $ 44.76 $ 46.10 $ 47.69 $ 49.59
7.5% $ 40.50 $ 41.26 $ 42.12 $ 43.10 $ 44.23 $ 45.55 $ 47.11
8.0% $ 39.38 $ 40.04 $ 40.78 $ 41.63 $ 42.59 $ 43.70 $ 45.00
8.5% $ 38.35 $ 38.93 $ 39.58 $ 40.32 $ 41.15 $ 42.10 $ 43.19
9.0% $ 37.41 $ 37.92 $ 38.50 $ 39.14 $ 39.86 $ 40.68 $ 41.61
9.5% $ 36.54 $ 37.00 $ 37.51 $ 38.07 $ 38.70 $ 39.41 $ 40.22
10.0% $ 35.74 $ 36.15 $ 36.60 $ 37.10 $ 37.66 $ 38.28 $ 38.98
Appendix
30 32 34 36 38 40 42 44 46 48 50 520%
2%
4%
6%
8%
10%
12%
14%
16%
Monte Carlo Simulation
Input Variables
Variable Mean Std. Dev.
Revenue Growth 6.0% 1.0%
Perpetuity Growth 0.5% 0.5%
Cost of Equity 8.675% 1.0%
Forward PE Ratio 12 1.0%
Target Price Distribution
Appendix
Division/ Quarter WWLD STB MBD EDD OSD MSFT
Q1 0.998 0.970 0.992 0.797 1.002 0.967Q2 0.982 1.071 1.053 0.746 1.050 1.001Q3 0.998 0.955 0.954 0.835 0.919 0.936Q4 1.022 1.008 1.005 1.636 1.036 1.102
Seasonal Factors
Q1 Q2 Q3 Q40.85
0.9
0.95
1
1.05
1.1
1.15MSFTComputed with data
from Q1-2002 FY to Q1-2013 FY
Appendix
Correlation with US GDP
WWLD STB MBD EDD OSD MSFT0%
20%
40%
60%
80%
100%
Correlation of quarterly revenue seasonally adjusted of each division and total with quarterly US GDP seasonally adjusted
Division WWLD STB MBD EDD OSD MSFT
r(US,R) 88.6% 96.1% 97.0% 90.7% 55.1% 96.4%
Appendix
Correlation with European countries GDP
Correlation of quarterly revenue seasonally adjusted of each division and total with quarterly US GDP seasonally adjusted
Division/ Country WWLD STB MBD EDD OSD MSFT
US 88.6% 96.1% 97.0% 90.7% 55.1% 96.4%
France 83.2% 85.8% 90.2% 87.7% 60.6% 90.3%Italy 24.0% 10.8% 23.2% 32.0% 41.6% 24.9%
Germany 78.0% 77.5% 83.1% 80.2% 60.2% 83.3%UK 84.6% 89.6% 93.0% 90.8% 65.0% 92.9%
Appendix
Global Correlation
Correlation of total revenue annual growth rates and annual GDP growth rates from different regions
Region r (GPD,R)
East Asia & Pacific 40.2%
European Union 59.2%Latin America & Caribbean 29.7%
OECD Countries 60.5%Middle East and North Africa 44.2%
South Asia 49.1%North America 59.1%
World GDP 58.4%
OECD (Organization for Economic Co-Operation and Development)Biggest economies: US, Japan, Germany, France & UK
European UnionBiggest economies: Germany, France, UK, & Italy
Appendix
Fiscal YearPercentage of Total Revenues
US Other countries
2000 68.3% 31.7%
2001 70.4% 29.6%
2002 70.7% 29.3%
2003 68.6% 31.4%
2004 68.0% 32.0%
2005 63.9% 36.1%
2006 63.1% 36.9%
2007 61.3% 38.7%
2008 59.5% 40.5%
2009 56.6% 43.4%
2010 57.9% 42.1%
2011 54.3% 45.7%
2012 52.7% 47.3%
Geographic Segments
20002001
20022003
20042005
20062007
20082009
20102011
20120%
20%
40%
60%
80%
100%
US Other countries
Appendix
• Tried different forecasting methods and selected method with lowest Mean Absolute Deviations & Mean Square Error:
• Forecasted seasonally adjusted quarterly revenue from Q2-2013 FY to Q4-2017 FY for each division and adjusted for seasonality
• Added forecasted revenues to obtain annual revenues and annual growth rates
Forecast - Regression
WWLD STB MBD EDD OSD
Ind. Variable -Upward trend- MBD rev.
-Upward trend- US GDP
-Upward trend- US GDP -US GDP -US GDP
Dep. Variable WWLD revenues STB revenues MBD revenues EDD revenues OEC revenues
Appendix Next Forecast
Forecast - Equations
1.82US106.75U0.09STB GDP5
T
• WWLD – R2 = 85.5
• STB – R2 = 98.5
• MBD – R2 = 95.8
• EDD – R2 = 82.2
• OSD – R2 = 30.3
1.36US105.59MBD0.737WWLD GDP5
1.32US103.13U0.05MBD GDP4
T
3.37US103.66EDD GDP4
157.27US103.48OSD GDP4
Appendix Next Forecast
Forecast - Results
Fiscal Year WWLD STB MBD EDD OSD2013 $20,382 $19,239 $25,713 $10,680 $3,0242014 $21,880 $20,400 $27,638 $12,096 $3,0612015 $22,949 $21,646 $29,274 $12,987 $3,1472016 $24,094 $22,863 $31,046 $14,036 $3,2462017 $25,455 $23,894 $32,680 $15,262 $3,363
Fiscal YearGrowth rates (%)
Method 1 Method 2 Method 32013 6.25% 6.99% 5.37%
2014 9.04% 7.64% 9.70%
2015 5.79% 5.79% 5.78%
2016 5.92% 5.87% 5.86%
2017 12.37% 5.63% 6.12%
Total Revenues VerificationMethod 1: Multiple regression with UT and US GDPMethod 2: Summation of each division’s revenueMethod 3: Multiple regression with WWLD, STB, MBD, EDD & OSD
Appendix Next Forecast
Forecast - Graphs
Appendix Next Forecast
Forecast – Justification US GDP
• US is the biggest economy in the world. The second biggest economy is half of US economy
• US continues to be the most important market for Microsoft• Correlation of each segment’s revenues and total revenues is
mostly higher with US GDP• Difference in MDA and MSE are small if European countries
are used• Correlation results yielded a high R2 with US GDP
Appendix
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20170
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
US European Union Emerging Markets World GDP
GD
P (b
n)Economic Outlook
Source: International Monetary Fund
Appendix
Windows Timeline
Appendix
Microsoft Office Timeline
Appendix
Server & Tools Timeline
Appendix
Piracy Rates - BRIC
Country Legal Sales (M) Pirated Value (M)US $41,664 $9,773China $2,659 $8,902Russia $1,895 $3,227India $1,721 $2,930Brazil $2,526 $2,848
US China Russia India Brazil0%
10%20%30%40%50%60%70%80%90%
100%
81%
23%
37% 37%47%
19% 77% 63% 63% 53%
Pirated ValueLegal Value
Appendix
Cash Balance
2005 2006 2007 2008 2009 2010 2011 2012 0
10000
20000
30000
40000
50000
60000
70000
Cash and Short Term Investments
$68 Billion as of 12/31/2012
Appendix
Top Holdings
Cascad
e Inve
stmen
t, L.L.C
.
BlackR
ock, In
c.
The V
angu
ard Gro
up, Inc.
Ballmer,
Stev
en A.
State
Stree
t Global
Advisors,
Inc.
- 1.00 2.00 3.00 4.00 5.00 6.00
Top Holdings
% o
f Tot
al S
hare
s Out
stan
ding
Holder Common Stock Equivalent Held
% of Total Shares Outstanding
Market Value ($ mm)
Cascade Investment, L.L.C.431,411,775
5.15 11,861.70
BlackRock, Inc.430,316,195
5.14 11,831.50
The Vanguard Group, Inc.343,251,826
4.10 9,437.70
Ballmer, Steven A.333,252,990
3.98 9,162.80
State Street Global Advisors, Inc.318,167,120
3.80 8,748.00
Appendix
Hedging
Hedging Major Securities
Currency Euro
Japanese Yen
British Pound
Canadian $
Interest Rate Investment Grade notesMortgage backed Securities
Equity
Commodity Metals EnergyGrain
Manage global portfolio of securities to relative global and domestic indicies. The
return on these is correlated to these indicies.broad commodity exposure
Manage these commodities to global commodity indicies and their return is
correlated to these indicies.
Diversified across credit sectors and maturities to limit risk. Consist primarily of investment-grade securities. Use Forward
purchase commitments of mortgage backed assets to gain exposure to agency
and mortgage backed securities.
Monitor foreign currency exposures daily and use hedges where practicable to
offset the risks and maximize economic effectiveness.
Appendix
Forecasted EPS and DPS
2010 2011 2012 2013F 2014F 2015F 2016F 2017F $-
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
EPS and DPS
Earnings Per ShareDividend Per Share
2010 2011 2012 2013F 2014F 2015F 2016F 2017F
Earnings Per Share $ 2.13 $ 2.73 $ 2.02 $ 2.65 $ 2.81 $ 3.01 $ 3.18 $ 3.39
Dividend Per Share $ 0.52 $ 0.64 $ 0.80 $ 0.93 $ 0.98 $ 1.05 $ 1.11 $ 1.19
Appendix
Altman Z Score 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Microsoft 14.54 11.39 10.66 9.23 7.09 6.61 6.29 4.59 5.42 4.43 4.47
Apple 4.12 3.44 4.3 7.31 7.24 7.62 9.22 6.96 7.26 7.58 7.96
Oracle 12.9 9.89 10.97 5.39 4.47 4.56 4.19 4.29 3.84 4.52 4.51
IBM 2.83 2.89 2.91 3.06 3.09 3.0 3.37 3.63 3.8 4.18 4.41
Google 4.69 3.78 67.41 57.42 54.27 40.56 27.46 21.31 11.25 10.15 7.84
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0
5.0
10.0
15.0
20.0
25.0
Altman Z-Score
Microsoft
Competitors Average
Distress Level
Appendix
Revenue by Division
Appendix
2007 2008 2009 2010 2011 2012 2013F 2014F 2015F 2016F 2017F0
20,000
40,000
60,000
80,000
100,000
120,000
Entertainment and DevicesMicrosoft BusinessOnline ServicesServer and ToolsWindows & Windows Live
Revenues 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F 2016F 2017F
Windows & Windows Live 14,779 16,815 15,563 18,789 18,787 18,818 19,107 20,445 21,672 22,972 24,259
Server and Tools 11,117 13,217 14,686 15,121 16,691 18,696 19,633 21,016 22,405 23,664 24,731
Online Services 2,434 2,164 2,110 2,345 2,680 2,934 3,165 3,491 3,704 3,945 4,229
Microsoft Business 16,478 18,904 19,211 19,525 22,314 23,963 25,747 27,676 29,314 31,087 32,723
Entertainment and Devices 6,136 8,502 6,416 6,135 8,896 9,585 9,788 10,767 11,520 12,442 13,437
Total Revenues 51,122 60,420 58,437 62,484 69,943 73,723 77,440 83,394 88,615 94,110 99,379
Net Working Capital
2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F 2016F 2017F
Current Assets
48,737
49,010
40,168
43,242
49,280
55,676
74,918
85,084
80,095
85,911
91,045
96,459
101,672
Current Liabilities
16,877
22,442
23,754
29,886
27,034
26,147
28,774
32,688
33,577
34,713
37,711
40,720
42,810
Net Working Capital
31,860
26,568
16,414
13,356
22,246
29,529
46,144
52,396
46,518
51,198
53,334
55,739
58,862
2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F 2016F 2017F -
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Net Working Capital
Net Working Capital
Appendix
Risk Categories
Risk Categories 2012 2011 Average High Low
Foreign currency $ 98 $ 86 $ 173 $ 229 $ 84
Interest rate $ 71 $ 58 $ 64 $ 73 $ 57
Equity $ 205 $ 212 $ 194 $ 248 $ 165
Commodity $ 18 $ 28 $ 20 $ 29 $ 15
Year Ended June 30, 2012 2011 2010
Federal statutory rate 35.00% 35.00% 35.00%Effect of:
Foreign earnings taxed at lower rates -21.10% -15.60% -12.10%Goodwill impairment 9.70% 0% 0%I.R.S. settlement 0% -1.70% 0%Other reconciling items, net 0.20% -0.20% 2.10%Effective rate 23.80% 17.50% 25.00%
Appendix
Return on Equity
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Return on Equity
msftcompetitors' average
Return on Equity 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012msft 10.8% 12.9% 11.7% 19.9% 28.6% 39.5% 52.5% 38.4% 43.8% 44.8% 27.5%
aapl 1.6% 1.6% 5.7% 21.2% 22.8% 28.5% 33.2% 30.5% 35.3% 41.7% 42.8%
orcl 35.9% 37.1% 37.5% 30.6% 25.9% 26.3% 27.2% 22.9% 21.7% 23.9% 23.7%
ibm 23.1% 26.0% 25.2% 24.7% 30.6% 36.6% 58.7% 73.9% 64.6% 73.1% 73.8%
goog 26.7% 22.6% 23.7% 23.3% 21.2% 16.6% 20.3% 20.7% 18.7% 17.2%
competitors' average 20.2% 22.9% 22.7% 25.1% 25.7% 28.1% 33.9% 36.9% 35.6% 39.3% 39.4%
Appendix
Debt Structure Breakdown
Due Date Face Value
Stated
Effective
Interest
Interest
Interest
Interest
Interest Interest Record Date Pay DateRecord
Date Pay Date
Rate Rate
Notes September 27, 2013
$ 1,000 0.88% 1.00% March 15 March 27September
15 September 27June 1, 2014 2,000 2.95% 3.05% 15-May 1-Jun 15-Nov 1-DecSeptember 25, 2015 1,750 1.63% 1.80% 15-Mar 25-Mar 15-Sep 25-SepFebruary 8, 2016 750 2.50% 2.64% February 1 February 8 1-Aug 8-AugJune 1, 2019 1,000 4.20% 4.38% 15-May 1-Jun 15-Nov 1-DecOctober 1, 2020 1,000 3.00% 3.14% 15-Mar 1-Apr 15-Sep 1-OctFebruary 8, 2021 500 4.00% 4.08% 1-Feb 8-Feb 1-Aug 8-AugJune 1, 2039 750 5.20% 5.24% 15-May 1-Jun 15-Nov 1-DecOctober 1, 2040 1,000 4.50% 4.57% 15-Mar 1-Apr 15-Sep 1-OctFebruary 8, 2041 1,000 5.30% 5.36% 1-Feb 8-Feb 1-Aug 8-AugTotal 10,750
Convertible DebtJune 15, 2013 1,250 0.00% 1.85%Total face value $ 12,000
Appendix
Capital Structure Breakdown
12 months Jun-30-2011 12 months Jun-30-2012 3 months Dec-31-2012
Total Debt 13,138 12,775 14,218 18.70% 16.10% 16.40%Total Common Equity 57,083 66,363 72,576 81.30% 83.90% 83.60%
Total Capital 70,221 79,138 86,794
16.40%
83.60%
Capital Structure
Total Debt
Total Common Equity
Appendix
Price to Earnings
Jan-31-2012
Feb-16-2012
Mar-03-2012
Mar-19-2012
Apr-04-2012
Apr-20-2012
May-06-2012
May-22-2012
Jun-07-2012
Jun-23-2012
Jul-09-2012
Jul-25-2012
Aug-10-2012
Aug-26-2012
Sep-11-2012
Sep-27-2012
Oct-13-2012
Oct-29-2012
Nov-14-2012
Nov-30-2012
Dec-16-2012
Jan-01-2013
0.00x
2.00x
4.00x
6.00x
8.00x
10.00x
12.00x
14.00x
16.00x
18.00x
20.00x
MSFT
Competitors Average
2012 Price to Earnings
Average Min Max
MSFT 13.01x 10.35x 15.39x
AAPL 14.39x 12.05x 16.64x
INTC 10.50x 8.92x 11.78x
GOOG 0.00x 0.00x 0.00x
ORCL 15.47x 14.21x 16.27x
QCOM 21.17x 19.42x 23.72x
Appendix
Revenue Growth ForecastsForecast based on Regression Analysis
Microsoft Business Server & Tools Windows & Windows Live Entertainment & Devices Online Services2013 6.32% 3.07% 8.64% 14.47% 2.35%2014 6.49% 6.04% 7.35% 10.30% 1.31%2015 5.52% 6.11% 4.89% 7.34% 2.13%2016 6.05% 5.62% 4.99% 8.05% 3.54%2017 5.26% 4.51% 5.65% 8.72% 3.19%
Adjustments Based on Qualitative Analysis
Microsoft Business Server & Tools Windows & Windows Live Entertainment & Devices Online Services2013 1.00% 2.00% -4.50% -12.50% 8.00%2014 1.00% 1.00% -0.50% -1.00% 9.00%2015 0.50% 0.50% 1.00% -0.50% 4.00%2016 0.00% 0.00% 1.00% 1.00% 3.00%2017 0.00% 0.00% 0.00% 1.00% 4.00%
Final Growth Rate Projections
Microsoft Business Server & Tools Windows & Windows Live Entertainment & Devices Online Services2013 7.32% 5.07% 4.14% 1.97% 10.35%2014 7.49% 7.04% 6.85% 9.30% 10.31%2015 5.92% 6.61% 5.89% 6.84% 6.13%2016 6.05% 5.62% 5.99% 9.05% 6.54%2017 5.26% 4.51% 5.65% 9.72% 7.19%
Appendix
Projections by Segment
Final Revenue Projections
Microsoft Business Server & Tools Windows & Windows Live Entertainment & Devices Online Services2013 25,747 19,633 19,108 9,788 3,1652014 27,676 21,016 20,445 10,767 3,4912015 29,314 22,405 21,672 11,520 3,7042016 31,087 23,664 22,973 12,442 3,9452017 32,723 24,731 24,259 13,437 4,229
Operating Margins ProjectionsMicrosoft Business Server & Tools Windows & Windows Live Entertainment & Devices Online Services
2013 64.5% 40.4% 62.3% 3.77% -63.2%2014 62.5% 40.4% 59.8% 3.84% -50.1%2015 62.3% 39.9% 58.8% 3.92% -37.8%2016 62.0% 38.8% 57.8% 4.05% -25.4%2017 61.5% 37.4% 56.8% 4.08% -9.46%
Operating Income Projections
Microsoft Business Server & Tools Windows & Windows Live Entertainment & Devices Online Services2013 16,607 7,935 11,907 369 (2,000)2014 17,297 8,494 12,229 414 (1,750)2015 18,263 8,943 12,746 451 (1,400)2016 19,274 9,186 13,001 497 (1,000)2017 20,124 9,254 13,782 548 (400)
Appendix
Valuation Total Business
2012A 2013E 2014E 2015E 2016E 2017ETotal Revenue 73,723.00 77,654.35 83,607.34 88,828.21 94,323.57 99,591.85 Operating Income from divisions 21,763.00 29,171.85 30,925.24 33,129.69 34,966.94 37,197.16 Margin 29.52% 37.57% 36.99% 37.30% 37.07% 37.35% Interest Expense 380.00 380.00 380.00 380.00 380.00 380.00 Non-Operating Income/Expense 1203.64 1203.64 1295.91 1376.84 1462.02 1543.67 Special Items -660.06 -660.06 -710.66 -755.04 -801.75 -846.53Income before income taxes 22,143.00 29,335.43 31,130.49 33,371.48 35,247.21 37,514.30 Taxes (24%) 5,289.00 7,040.50 7,471.32 8,009.16 8,459.33 9,003.43 Net Income 16,854.00 22,294.93 23,659.17 25,362.33 26,787.88 28,510.87 Depreciation & Amortization 2,967.00 2,230.19 2,423.38 2,562.13 2,730.40 2,870.16 Other Non-Cash Adjustments 9,024.00 3,106.17 3,344.29 3,553.13 3,772.94 3,983.67
Change in non -cash Working Capital 2,657.00 (1,486.79) (619.98) 1,473.54 1,408.23 564.94 Less Capital Expenditures (2,305.00) (3,500.00) (3,226.15) (3,431.76) (3,648.17) (3,855.64)Free cash flow 29,197.00 22,644.51 25,580.71 29,519.38 31,051.29 32,074.00 Calculation of Implied Value per sharePV of 2013-2017 105,314.73 $ 12.51 $ 12.51 PV of Terminal Value 248,031.60 $ 29.46 $ 29.46 Less: Minority Interest - Less: Debt (53,040.00) $ (6.30) $ 1.62 Add: Cash 66,644.00 $ 7.91 $ 43.58 Total Equity Value 366,950.33 Shares O/S 8,420.00 Implied Value (Price Target) $ 43.51 Current Stock Price 27.37 PER Model $ 31.85 PER Weight 30% Final Price Target $ 40.02 Upside Potential 46%
Appendix
Main Competitors
Competition
WWL STB OSD MBD EDD
Apple HP Google Adobe Nintendo
Google IBM Apple Sony
Oracle Cisco Apple
Vmware Google Google
Amazon IBM BlackBerry
Salesforce.com
Appendix
Shift to Mobile
Appendix
Recent Events & Acquisitions
February 8, 2013 – Surface Pro LaunchFebruary 5, 2013 – Microsoft lends Dell $2 BillionJanuary 29, 2013 – Launch of Office 2013 and Office 365January 2, 2013 – R2 AcquisitionOctober 26, 2012 – Windows 8 and Surface Rt LaunchOctober 16, 2012 - StorSimple Inc. AcquisitionOctober 4, 2012 - PhoneFactor Inc. AcquisitionSeptember 18, 2012 – Dividend increase to $0.23September 4, 2012 – Windows Server 2012July 9, 2012 - Perceptive Pixel Inc. AcquisitionJune 25, 2012 - Yammer Inc. Acquisition for $1.2 billion in cashJune 28, 2011 – Launch of Office 365November 22, 2011 - VideoSurf Inc. AcquisitionJune 7, 2011 – Prodiance AcquisitionMay 10, 2011 – Skype Acquisition for $8.5 billion in cash
Appendix
Cloud Costs
Appendix
Public Cloud Concerns
Appendix
Market Share
Microsoft Market Share
Cloud 27%Server 75%Office 90%Windows 92%Xbox 47%Windows Phone 3%Bing 16%
Appendix
Cloud Gross Margins
Gross Margin 2011 2012
Microsoft 78% 76%
Vmware 83% 84%
Salesforce.com 78% 78%
Appendix
Risk Matrix
Appendix
Windows Phone Market Share
Appendix
France Italy Spain UK US Australia0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
Windows Phone Market Share
2011
2012
2011 2012France 3.70% 4.10%Italy 2.80% 13.90%Spain 0.40% 1.80%UK 2.20% 5.90%US 2.20% 2.60%Australia 1.90% 2.80%
PC Penetration
Appendix
North America
UK
France
Germany
Brazil
Russia
China
India
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
PC Penetration
Country PC PenetrationIndia 4.1%China 7.7%Russia 16.6%Brazil 26.0%Germany 77.9%France 82.7%UK 90.6%North America 88.8%
Tablets Shipments & Emerging Markets
Appendix
• CIOs at the cloud forum: “Microsoft is most secure”
• Windows 8 uses Secure Boot• Incorporate Windows
Defender standard • DoD, State of Texas deal for
Windows 8 and Office 365
Security - Windows
Appendix
• Office 365– $99.99/year, or $9.99 per month– All applications– Skype, SkyDrive– Up to 5 PCs or Macs
• Home $ Student– $139.99– Word, Excel, PowerPoint, OneNote– 1 PC only
• Professional– $399.99– All applications– 1 PC only
Pricing - Office
Appendix
Cloud Services
Appendix
• Targets by age and gender• Easier import of advertising campaign• Higher character count• Better support than Google• Less expensive to bid for a spot
– Example: minimum 1 cent with Bing, 5 cents with GoogleKeyword Bing CPC Google
CPCBing
Savings
mens boardshorts $0.48 $1.35 64%labor laws $0.96 $3.30 71%medicare supplement insurance plans
$5.99 $11.58 49%
Online Service Division
Appendix
• MSFT has about 25% market share• Gartner estimates of the IaaS and PaaS cloud markets in 2014 to be $13billion.
– Assuming MSFT keeps a conservative 25% market share, that’s $3.3 billion of cloud revenue
• 10,000 Azure customers as of 2011• STB fastest growing segment. 16% operating profit before tax 5-year CAGR• STB margins are better than competitors average server segment margins
OPBT margin 2007 2008 2009 2010 2011 2012salesforce.com -1% 3% 6% 9% 6% -2%Rackspace 8% 8% 9% 10% 12% 13%Vmware 18% 17% 11% 15% 20% 19%MSFT STB 32% 29% 32% 36% 38% 40%Oracle cloud segment 43% 46% 44% 47% 49% 48%
Cloud Revenue
Appendix
52 Wk. High/Low: 32.95/26.26
NasdaqGS:MSFT - Recommendation: Outperform (2.20)1 - Buy 152 - Outperform 63 - Hold 174 - Underperform 05 - Sell 20 - No Opinion 1
Revenue Company Level (USD)
FQ3 2013 FQ4 2013
Current 20754.31 21326.331 month ago 20793.92 21361.772 months ago 20884.63 216243 months ago 20995.14 21732.46 months ago 20070 20257.049 months ago 18941.02 20270.9712 months ago 18578.64 19906.4518 months ago 18793.22 19829.15
EBITDA Company Level (USD)
FQ3 2013 FQ4 2013
Current 9023.66 8899.591 month ago 9023.66 8899.592 months ago 8671.11 8950.423 months ago 8628.55 8949.166 months ago 8628.75 8527.699 months ago 8107.33 8646.0612 months ago 7799.12 8350.4618 months ago 7823.75 8263.45
We are projecting $2.65 EPS for 2013. Street is $2.84
NasdaqGS:MSFT (USD) Mean Median High/Low Std. Dev.
Target Price 32.91 33 38.00/28.00 2.91
Street Consensus
Appendix
– IHS estimates it costs $271 to build $499 Surface tablet.– Samsung provided display, memory chips, and battery,
Nvidia makes processor chip– Keyboard only costs $16, sells for $120– Costs $316 to make the $499 16GB iPadMade in China
Surface Production
Appendix
• 95% of Microsoft's revenues comes from its 640,000 partners (2010)
2010 2011 -
10,000 20,000 30,000 40,000 50,000
Cloud Partners
2007 2009 $440,000,000,000 $460,000,000,000 $480,000,000,000 $500,000,000,000 $520,000,000,000 $540,000,000,000 $560,000,000,000
Microsoft and Partners Revenue
Supply Chain - Customers
Appendix
• Current battle between MSFT and GOOG– Google claims MSFT used its technology on WP,
Surface, and Xbox– Motorola asking for $4 billion a year for its
wireless and video patents. Microsoft says Google deserves only $1 million a year.
– Judge: parts of those patents are "indefinite,“ - Motorola's patent language did not distinctly articulate the invention.
– MSFT claims Android devices infringe on some of its patents
– A ruling is expected sometime in the next several weeks.
• I/P Engine sued MSFT for $696M for using internet search technologies on Bing.– I/P received only $30m for the same
technologies when it sued Google and AOL.
Lawsuits
Appendix
• Physically destroying data hard drives• Data encrypted with Secure Sockets
Layer• Data in databases separated in
different containers and in different language
• Performs deep packet inspection and blocks and sends alerts when it sense suspicious traffic
• Data is replicated to 3 nodes to prevent data loss
• JPMorgan, City of Chicago, Toyota, Volvo, Pixar
Security - Cloud
Appendix