Microsoft Corporation (NASDAQ:MSFT) often comes under criticism for losing its dominant position in IT; the Windows Phone is a distant third behind the iPhone and various Android phones, and its longstanding advantage in the PC market is simply becoming less important as usage habits change and consumers care more about mobile computing. But Microsoft’s Azure has seen steady growth and gives analysts a reason to be optimistic about the company’s future.
Azure strategically important for Microsoft
“We believe MSFT’s Azure is very strategic to the company and should enable the company to be a key player in this next era of computing (i.e. cloud, hybrid, etc.). We note the company already has over 250,000 customers across segments (i.e. SMB, enterprise, developers) and we think it can double this number by next year,” writes Stifel analyst Brad R. Reback, who thinks Azure will become “a multi-billion dollar business over the next few years.”
Microsoft faces intense competition in the cloud computing sector, notably from Amazon who has been undercutting the competition for years, but Microsoft has recently reduced its rates to compete. In the short term, that means Microsoft Corporation (NASDAQ:MSFT) will have to give up some profits for market share.
“MSFT’s Azure business will likely have fairly low to break-even margins for quite some time, until this business scales and its hybrid and premium services grow,” writes Reback. Microsoft Corporation (NASDAQ:MSFT) is focusing on providing complete end-to-end solutions and hybrid computing products (allowing clients to move quickly between cloud and on-premise resources) as a competitive advantage among larger companies. “While we think that MSFT has several areas of its business in which it is challenged (mostly consumer), we believe Enterprise is an area in which it thrives,” he writes.
Cloud computing gives Microsoft a backup plan
Not everyone is bearish on Microsoft Corporation (NASDAQ:MSFT)’s consumer products. Forbes contributor Mark Fidelman has argued that Microsoft’s Windows Phone could overtake the iPhone in the next three years as the demand for affordable smartphones grows in places like India and Latin America and consumers opt for phones that are integrated into an OS they are used to. But even if the company’s smartphone market doesn’t take off, it could remain profitable in the future by focusing on its enterprise-class cloud products.