2015: The Year Microsoft Turned the Ship Around

As 2015 comes to a close, it'll be remembered as a year full of surprises. Who thought back in April that the New York Mets would make the playoffs (along with the Chicago Cubs) and somehow make it to the World Series? While Microsoft was on pace to have a good year when 2014 was coming to a close, it was hard to imagine Redmond would gain such a high level of respect and dialog among so many longstanding critics.

If Goldman Sachs' mea culpa last week wasn't enough, when I picked up this week's issue of Barron's magazine, which is my Saturday morning ritual, I glanced at the cover and saw the headline, "The New Microsoft," with Satya Nadella's photo plastered on it. Usually when a company is featured on the cover of Barron's, it's because it has determined its stock is going to soar -- or crater. In this case it was the former. Noting that since Nadella has taken over, Microsoft's shares are up 48 percent -- 67 percent if you go back to the day his predecessor Steve Ballmer announced he was "retiring," it has emerged again as a growth company whose shares could jump another 30 percent. The article suggests, while Amazon's AWS cloud business is Microsoft's most significant competitor, the growth of Azure will give it a run for its money. At the same time, the author suggests Microsoft is a beneficiary of Amazon's growth. In April, Amazon disclosed AWS's revenues and profits for the first time, and its shares have since grown 70 percent.

Noting that information on Azure's financials are more "opaque," Microsoft disclosed that revenues for that business grew 135 percent in its first fiscal quarter. Consequently, Bernstein Analyst Walter Moerdler has forecast Azure revenues are approximately $1 billion and could rise to $7.3 billion by mid-2018 with profits as good "as Amazon's or better." The article emphasized how a number of Wall Street analysts have regained confidence in Microsoft, having turned straw to gold with its Surface business and making the successful transition to the cloud with other product areas, such as Office -- and proving its operating systems aren't dead with the successful launch of Windows 10 this year. But those are topics we've covered throughout 2015.

Reflecting on the year, it was quite an eventful one and full of surprises. Among them:

• Office 365 transitioned into a platform and subscription growth suggested the franchise is fast becoming the newest cash cow.
• The move to support containers provided a key step toward facilitating the move toward DevOps by enabling a new generation of systems automation.
• The next-generation of Windows Server and System Center (and how it will provide a more holistic hybrid cloud architecture with the forthcoming Azure Stack) came into view.
• Windows 10 arrived along with all sorts of new devices, including new Surfaces and third-party PCs, and early success has indicated that the death predictions of the famed desktop OS were premature.
• Biometric authentication took a key step forward this year with the debut of Passport and Windows Hello, but the coming year will determine whether it's poised to replace, or augment the password.
• Once a fierce opponent of open source software, Microsoft has embraced it and become an accepted participant in the community much to the surprise of Redmond critic Steven J. Vaughan-Nichols, who authored our September cover story.
• While Microsoft didn't perform any mega deals such as the rumored acquisition of Salesforce.com, it bought 14 closely held companies, the most since 2008. Many of them had an eye toward bolstering security and mobility management. Microsoft also stepped up its partnerships with the likes of Salesforce, Red Hat and even VMware.

Microsoft's success with Windows Phone was less of a talking point. While Microsoft's new Windows 10 for mobile loaded on an improved crop of Lumia Phones brought uniformity to all versions of Windows with the introduction of Windows Continuum, it didn't move the needle in terms of share. Perhaps it's too early but analysts aren't expecting a significant uptick.

Nadella took some heat for putting Project Astoria, its tooling that would enable Android developers to port their apps to Windows, on the backburner. Ironically, Nadella's loudest critic on the reported move was his predecessor Steve Ballmer, who made an issue of it at the recent Microsoft shareholder meeting. That notwithstanding, it's safe to say Nadella has reshaped Microsoft in a big way this year -- and certainly made moves that Ballmer never would have.

Posted by Jeffrey Schwartz on 12/21/2015 at 1:06 PM