The secret behind Microsoft’s strong comeback

April 26, 2019 16:32
CEO Satya Nadella said the company's philosophy is “to help every individual and organization to achieve more”. Photo: Reuters

Microsoft posted strong third-quarter results driven by a robust cloud business.

Its share price rose 5 percent at one point on Thursday, pushing the company's market cap beyond US$1 trillion.

Founded in 1975, the company is already 44 years old. It’s really something to stay in a leading position in the fast-changing tech world after so many years.

After retiring in 2006, founder Bill Gates has practically withdrawn from day-to-day operations and left the business empire to professional executives.

Microsoft has had three chief executives since then, and it is going from strength to strength.

Companies dealing with succession issues should take a page from Microsoft.

The tech behemoth has had a few stumbles. Like Nokia and Motorola, Microsoft missed out completely on the smartphone explosion. Its Windows Phone business was a complete disaster.

Surprisingly, it was able to seize other opportunities, such as the cloud business, which has become its main growth engine.

Revenue from the commercial cloud segment surged 41 percent to US$9.6 billion in the third quarter from the previous year, beating market expectations.

Though relatively mature, the personal computing unit still managed to grow 8 percent to US$10.7 billion in the quarter ending March from a year ago.

Productivity and business processes contributed US$10.2 billion, up 14 percent from a year ago.

The three business units each represent around one-third of its revenue, and commercial cloud is the brightest spot.

Revenue over the past 12 months jumped 15.4 percent to US$122.2 billion, while net profit surged 27.4 percent to US$33.4 billion.

Such strong earnings growth has justified a near doubling of its share price over last three years.

Microsoft’s success is largely attributed to the current chief executive, Satya Nadella, who has transformed the company into a cloud computing leader.

How did he do that? 

Nadella published a book, Hit Refresh: The Quest to Rediscover Microsoft's Soul and Imagine a Better Future for Everyone, where he reveals the inside stories behind the company's “miracle”.

In the book, he explains that the soul of Microsoft is not in personal computer or smartphone, but “to help every individual and organization to achieve more”. The transformation is about meeting customer needs even before they ask, and Microsoft employees have to take that to heart.

As an outsider, I believe some other factors also play a part. More than a billion personal computers still use the Windows system, which gives the company a huge ground to try and test different ideas.

These well-established businesses also provide a massive customer base and strong cashflow to support Microsoft’s transformation journey.

This article appeared in the Hong Kong Economic Journal on April 26

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist