Pentagon Picks Microsoft for JEDI Cloud-Computing Contract Over Amazon

Oct. 25, 2019

The Pentagon on Friday awarded Microsoft Corp. a hotly contested and controversial contract to build a large cloud-computing system for the U.S. military.

The so-called JEDI contract could be worth up to $10 billion to Microsoft over a 10-year period if the Pentagon exercises all options under the deal.

The only other remaining finalist was Amazon.com Inc. Several other firms were eliminated from the bidding earlier.

Defense Secretary Mark Esper this week said he was withdrawing from reviewing the contract to avoid the appearance of a conflict of interest. His son worked for one of the original bidders that was no longer in the running for the deal.

• We have seen a 775 percent increase of our cloud services in regions that have enforced social distancing or shelter in place orders.
• We have seen a very significant spike in Teams usage, and now have more than 44 million daily users. Those users generated over 900 million meeting and calling minutes on Teams daily in a single week. You can read more about Teams data here.
• Windows Virtual Desktop usage has grown more than 3x.
• Government use of public Power BI to share COVID-19 dashboards with citizens has surged by 42 percent in a week.

Microsoft (MSFT) reported quarterly earnings on Wednesday that exceeded Wall Street’s expectations, as the still-raging coronavirus outbreak proved no match for the tech giant’s booming cloud computing business.

However, the company’s stock — one of a clutch of high-flying tech stocks that pushed Microsoft’s market cap well over $1 trillion — fell by nearly 3% in after-hours trading.

Here are the most important fiscal Q4 2020 numbers from the report compared to what analysts were expecting as compiled by Bloomberg:

Revenue: $38 billion vs. $35.5 billion expected.

Earnings per share: $1.46 vs. $1.36 expected.

Intelligent Cloud: $13.4 billion vs. $13.1 billion expected.

More Personal Computing: $12.9 billion vs. $11.5 billion expected.

The story of Microsoft’s growth over the past several years has been its Intelligent Cloud business, which includes its powerful Azure platform. In fiscal Q4 2020, Microsoft reported $13.4 billion in revenue from Intelligent Cloud, a 17% increase over the same quarter last year.

“The last five months have made it clear that tech intensity is the key to business resilience. Organizations that build their own digital capability will recover faster and emerge from this crisis stronger,” said Satya Nadella, Microsoft’s CEO.

The company doesn’t break out its Azure revenue, but reported 47% growth for the cloud platform.

Microsoft’s Productivity and Business Processes unit, which includes its commercial and consumer Office 365 businesses and LinkedIn, grew 6% to $11.8 billion.

Perhaps unsurprisingly, Microsoft’s gaming business saw robust growth on work-from-home demand. The company saw growth of 1.3 billion, or 64%, with Xbox hardware revenue jumping 49%. Microsoft is set to launch a new console, the Xbox Series X, in November, which would normally mean slower sales of hardware at this point in the current Xbox One cycle.

While Microsoft’s growth has been impressive, BMO Capital Markets analyst Keith Bachman says the coming quarters will offer tough margin comparisons between fiscal year 2020 and fiscal year 2021.

According to Bachman, end-of-support for Microsoft’s Windows Server and Windows 7 helped push growth in the company’s Intelligent Cloud and More Personal Computing segments. That benefit, however, should drop off in fiscal Q4 2020.

Still, he says that Microsoft is well positioned for the next five years, despite trading at 1.15 times the S&P 500 based on free cash flow valuation.

Microsoft in Talks to Acquire TikTok, as U.S. Considers Banning the App

July 31, 2020

Microsoft Corp. is in talks to acquire the U.S. operations of TikTok, the Chinese-owned video app, according to people familiar with the matter, as President Trump said on Friday that he was considering taking steps that would effectively ban the app from the U.S.

A sale to Microsoft, likely for billions of dollars, would be a win for both TikTok and Bytedance, where executives had feared that the U.S. government would force device makers to take TikTok out of their app stores, according to another person familiar with the matter.

News of the talks, earlier reported by Fox Business, came as the U.S. was concluding a security review that was expected to recommend a divestiture of TikTok by its Chinese owner, Beijing-based Bytedance Ltd.

“We’re looking at TikTok. We may be banning TikTok,” Mr. Trump told reporters as he prepared to leave on a trip to Florida. “We may be doing some other things, there are a couple of options. But a lot of things are happening. So we’ll see what happens. We are looking at a lot of alternatives with respect to TikTok.”

Microsoft didn’t immediately return calls for comment.

For the Trump administration, an acquisition of TikTok would also eliminate potential legal challenges—and public backlash—should the wildly popular app be forced off of millions of American smartphones.

U.S. officials have expressed concerns that TikTok could pass on the data it collects from Americans streaming videos to China’s authoritarian government. TikTok has said it would never do so.

In a statement posted online this week, TikTok CEO Kevin Mayer, who was hired away from Walt Disney Co. earlier this year, said the company was committed to transparency.

“TikTok has become the latest target, but we are not the enemy,” he said.

A person familiar with the matter said earlier that U.S. officials had ordered Bytedance to divest its ownership.

The app known for its catchy dancing and lip-syncing videos has soared in popularity this year amid the pandemic. About 315 million users downloaded TikTok in the first quarter of the year, the most downloads ever for an app in a single quarter, according to research firm Sensor Tower, bringing its total to more than 2.2 billion world-wide.

In addition to concerns that TikTok could collect data on Americans, U.S. officials have been concerned that the app could be used to spread Chinese propaganda and that the platform’s moderators could be censoring content to appease Beijing.

The review of TikTok has centered around ByteDance’s 2017 acquisition of a similar video-sharing platform called Musical.ly, a Shanghai-based platform that had built a strong U.S. user base. After the acquisition, Musical.ly’s platform was discontinued, and users who wanted to share videos could continue to do so on TikTok’s platform.

ByteDance, whose secondary shares have valued the firm at $150 billion in recent weeks, counts big-name U.S. investors such as Coatue Management and Sequoia Capital among its backers.

The Committee on Foreign Investment in the U.S. began its probe into TikTok last year, amid concerns from members of Congress and others about the data it might be collecting.

The investigation into TikTok is taking place as the national security review panel has increasingly focused on deals that put U.S. citizens and their privacy at risk, a focus that Congress ordered in a 2018 law.

Under the new law, regulators will investigate deals involving foreign money if that business has access to data on more than one million people, including certain genetic and biometric data, financial data and health data. The rules also apply to investments in U.S. businesses that track users’ locations or target U.S. military or national security personnel.

The Treasury-led Committee on Foreign Investment in the U.S., or Cfius, is a panel of federal agencies that reviews deals involving foreign money to ensure they don’t put the country’s national security at risk. The panel has the power to review deals that involve U.S. companies, such as the 2017 acquisition.

Earlier this year, Mr. Trump ordered another Chinese company to sell its stake in a Maryland property management software firm, a platform that hotels and casinos use to enable guests to check into rooms using smartphones. That order marked the sixth time a U.S. president has either blocked a deal or ordered a corporate selloff since Congress authorized the power to intervene in 1988.