Analysts encouraged by Microsoft’s ‘cloud’ progress

SEATTLE (MarketWatch) — Wall Street analysts came away from Microsoft Corp.’s annual gathering encouraged by the company’s progress in adapting to a market in which software applications are increasingly delivered online, according to research reports published Friday.

Microsoft increasingly has been moving into so-called cloud computing, where software is accessed through an Internet connection, rather than installed in a user’s computer.

Younger rivals including Google Inc. (GOOG 484.85, -0.14, -0.03%) , Inc. (AMZN 117.89, +1.03, +0.88%) and Inc.  (CRM 98.95, +1.16, +1.19%) have sought to expand the cloud-computing market, while Microsoft has endeavored to alter its own approach to keep pace.

Jefferies & Co. analyst Katherine Egbert pointed out that investors are shifting money out of Microsoft shares, based on concerns about how the company will develop new ways of making money.

Shares of Microsoft have fallen roughly 15% in the past three months, compared with a roughly 8% decline for the Nasdaq Composite Index (COMP 2,255, +3.01, +0.13%) over the same period. The stock closed Friday down slightly, at $25.81.

But Egbert wrote in a research note that concerns about Microsoft may be exaggerated, as the company has a history of adopting “technologies, mostly invented by others, to the mass market.”

Cloud evolution

“We’re going to lead with the cloud,” Microsoft Chief Operating Officer Kevin Turner said at the company’s annual analyst meeting Thursday, while noting successes in vying for cloud-computing contracts against Google and International Business Machines Corp.
Microsoft “appears to be holding their own competitively” in cloud computing, Deutsche Bank analyst Todd Raker told clients in a note. “The bottom line is we believe the cloud is evolving from a secular threat to an opportunity” for the company.

However, Raker also acknowledged that the timing of any significant economic benefit from Microsoft’s cloud-computing effort remains “unclear,” noting that “we get significant pushback from investors on near-term reasons to own the stock.”

Some analysts argued that investors may not yet fully appreciate Microsoft’s Windows Azure platform service, which includes cloud computing and storage for customers hosted at the company’s data centers.

“While the buzz has picked up around Azure over the past 12 months, we do not believe the company gets enough credit,” Oppenheimer analyst Brad Reback told clients in his own research note.

“Azure should be a net revenue and profit creator” as more corporate customers snap up the service, he said.

Source: MarketWatch

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