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Microsoft: Nadella Continues To Lead With Distinction

Summary

  • Microsoft continues to do what’s right by shareholders. Finally Microsoft has a leader worth following.
  • CEO Satya Nadella has been nothing but direct and has led with distinction since replacing the inept and prickly Steve Ballmer at the helm.
  • The market has clearly applauded Nadella’s recent moves with shares rallying ~10% since early-April. This is in the face of a tough macro market.
  • Microsoft continues to wash its hands of former CEO Steve Ballmer’s poor choices with the announced layoffs of 7,800 employees and a $7.6 billion Nokia write down.
  • Still, Microsoft continues to improve its overall prospects one “tough choice” at a time and that’s all shareholders can ask this early into Nadella’s lead.

Microsoft (NASDAQ:MSFT) continues to do what’s right and continues to do what’s right by shareholders. Finally Microsoft has a leader worth following.

CEO Satya Nadella has been nothing but direct and has led with distinction since replacing the inept and prickly Steve Ballmer at the helm. The market has clearly applauded Nadella’s recent moves with shares rallying ~10% since early April. This is in the face of a tough macro market that has reached multi-year high levels of stress.

Nadella has been focused in his strategy, which he further outlined and clarified in a letter to employees recently. The strategy would include “tough choices” and a clear business product focus going forward. Still, Nadella’s leadership comes from a place of awareness and reality that his predecessor had never visited let alone led from – Nadella also noted clearly that Microsoft would need “dual-use” customers if it were to return to market share dominance of past levels. This means consumer as well as business.

Apparently, obtaining those dual-use customers means a tear down and rebuild of the company’s phone portfolio. And good riddance to it in its current iteration. Even the most ardent Windows-phone and Microsoft generalist fanboys can’t argue that the line is competitive at the highest levels. With Nadella letting go of 7,800 employees primarily from the phone business, this follows ~12,500 jobs from this segment a year ago, a fresh start will be at hand. An expensive fresh start, with Microsoft forced to write down $7.6 billion – a charge that exceeds the disgusting and disgraceful prize paid for Nokia, but still a fresh start.

So, what does this mean for Microsoft going forward?

I think it means that Nadella will continue to captain a trimming of the product portfolio, as he has done most effectively so far into his overseeing of affairs, and a focus on total ecosystem. Yes, Nadella also has been clear about that. He demands that if a product is under the umbrella and if a product is branded under the company name that the product contribute synergistically to the sum of the parts.

I believe this means an increased spend and focus on business productivity, an increased focus on total hardware – inclusive of gaming and business hardware (Surface Pro, Surface Hub, etc.), and an aggression from an M&A standpoint that will be much, much more focused. M&A under the Ballmer regime was sloppy at best and deliberately negligent at worst. Nadella will prefer to use a scalper rather than a chainsaw and that is a very, very good thing for shareholders.

I anticipate several near-term and mid-term acquisitions focused around the business productivity suite and the company’s “core/foundational” platform it’s looking to build on the non-consumer side. I also anticipate Microsoft continues to look for ways to embellish its gaming suite and ancillary revenue capture there.

While a massive write down is never a good thing, today’s egg on the face is one of the last remaining relics from one of the more shameful eras in company history. The Ballmer mistakes of the past are being thrown out and the company’s figurative hands washed. Microsoft continues to improve its overall prospects one “tough choice” at a time and that’s all shareholders can ask this early into Nadella’s lead.

Good luck everybody.

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