Microsoft is omnipresent. It's Windows operating system and Office suite of productivity software dominate their markets. The company's cloud computing platform, Azure, is one of the leaders in that burgeoning market. Customers range from individuals and small businesses to the world's biggest companies and government agencies. Microsoft makes tablets (Surface), game consoles (Xbox), and even laptop computers (introduced in 2015). The company's owns Skype, the video meeting service. And in 2016, Microsoft added LinkedIn, the business-oriented social network, to its portfolio in a $26 billion deal. Microsoft's software is included in most personal computers including those from Dell Technologies, HP Inc., and Lenovo.
Microsoft organized its reporting units into productivity and platform segments that reflect its strategic direction in productivity and platform.
The More Personal Computing segment, 44% of sales, consists of products and services for end users, developers, and IT managers across devices. Included are Windows OS products; devices, including the Surface tablet, phones, and PC accessories; gaming such as Xbox hardware and Xbox Live; video games; HoloLens virtual reality technology; and third-party video game royalties; and search advertising.
The Productivity and Business Processes segment, 29% of sales, covers productivity, communication, and information products and services across devices and platforms. Among the products are Office, Office 365 (the cloud version), Exchange, SharePoint, Skype and Skype for Business, and the Dynamics ERP and CRM products.
The Intelligent Cloud segment, 27%, consists of its public, private, and hybrid server products and cloud services. Those products and services include SQL Server, Windows Server, Visual Studio, System Center, and Azure.
Microsoft operates in some 190 countries with international sales accounting for 52% of revenue and the balance coming from the US.
The company has regional centers around the world as well as data centers and research and development facilities.
Sales and Marketing
Microsoft sells its products and services online and through OEMs, distributors, and resellers. The company's advertising spending has declined in recent years. It spent $1.6 billion in 2016 (ended June), compared $1.9 billion in 2015, $2.3 billion in 2014, and $2.6 billion in 2013.
In 2016 Microsoft reported lower revenue for the first time in seven years. It fell 9% to $85 billion in 2016 from $93.6 billion in the prior year. Sales from More Personal Computing segment dropped 6% largely due to the deferral of $6.6 billion of the revenue realized from Windows 10, introduced in summer 2016. Overall, revenue from Windows tumbled 45% year-to-year. The company also felt the impact of foreign currency exchange rates from the strong US dollar.
While revenue tumbled, net income soared 33% higher to $16.8 billion in 2016 -- mostly on the absence of expenses the company had in 2015. It had impairment charges (for its phone business) and expenses for integration and restructuring.
In 2016, operating cash flow rose to $33.3 billion from cash provided by accounts payable and inventories.
Microsoft isn't just on the desktop anymore and its not just for PCs, either.
From its Azure cloud computing operations to its Surface tablets (and now Surface Book notebook computer), the company is planting its flag in the cloud and mobile. Cloud customers are attracted by the stability of Microsoft products (and the company itself) as well as the industries -- such as health care -- that Microsoft's customers are in. Microsoft competes with Amazon's Amazon Web Services and Google in cloud services, a fight that has seen prices drop as services increase. Microsoft keys on the capability of its public cloud to integrate with customers' hybrid and private clouds.
Microsoft also has adapted its software for other devices such as those that run on the Apple iOS and the Android OS from Google. The Office 365 is a cloud-based version of its Office productivity suite and gained 10 million users in 2016 (ended June).
The company continues to depend on PC makers such as Dell and Lenovo to load its software on their computers. That means not only the operating system, but Office as well. Microsoft's notebook computer is a direct competitor with similar products of its customers. The hope within Microsoft is that the computer will inject energy into the slumping PC market, improving the environment for other PC makers as well.
In the phone business, Microsoft shifted its focus toward providing software rather than hardware. It sold its feature phone business to Hon Hai/Foxconn Technology Group, and HMD Global, a deal that included manufacturing facilities in Vietnam. Without the entry-level class of phones, Microsoft continues with Windows 10 Mobile and the Lumia line of phones and those from OEM partners Acer, Trinity, and VAIO.
Mergers and Acquisitions
The 2016 acquisition of LinkedIn adds to Microsoft's services and deepens capability to compete with relationship-oriented software providers such as Salesforce.com. At $26 billion it was Microsoft's biggest acquisition. LinkedIn will operate as an independent subsidiary of Microsoft with the same management. That said, Microsoft and LinkedIn intend to integrate a number of their products. For example, people drafting their résumés in Microsoft's Word can update their LinkedIn profiles and find and apply for jobs there. Or LinkedIn Learning will be available in Office 365 and the Windows ecosystem.
In 2014 Microsoft made a highly publicized agreement to acquire Swedish gaming firm Mojang AB, which created the hugely popular cult videogame Minecraft. The deal, valued at $2.5 billion and anticipated to close by the end of the year, will provide Microsoft with a hot mobile and cross-platform property that it hopes will spur growth for its own mobile offerings and attract a younger generation of consumers to its products.