Is Microsoft the next Apple?

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Is Microsoft the next Apple?

  1. 1. Is Microsoft the next Apple? October 16, 2013 Microsoft Corp. NASDAQ: MSFT
  2. 2. Disclosure! Longboard  Asset  Management,  LLC  (“Longboard”)  is  an  investment  advisor  to  funds  that  are  in  the  business  of  buying  and  selling  securi>es   and  other  financial  instruments.       Longboard  currently  has  a  long  posi>on  in  MicrosoB  Corpora>on  (“MicrosoB”)  common  stock.  We  do  not  own  any  op>ons  on  MicrosoB   common  stock.     Longboard  will  profit  if  MicrosoB  stock  increases  in  value  and  will  lose  money  if  it  decreases  in  value.  Longboard  may  change  its  views   about  or  investment  posi>on  in  MicrosoB  at  any  >me  for  any  reason  or  for  no  reason.         Longboard  may  buy,  sell,  cover  or  otherwise  change  the  form  or  substance  of  its  MicrosoB  investment.  Longboard  disclaims  any  obliga>on   to  no>fy  the  market  of  any  such  changes.       The  informa>on  and  opinions  expressed  in  this  presenta>on  (the  “Presenta>on”)  is  based  on  publicly  available  informa>on  about   MicrosoB.  Longboard  recognizes  that  others  may  disagree  with  Longboard’s  analyses,  conclusions  and  opinions.       The  Presenta>on  includes  forward-­‐looking  statements,  es>mates,  projec>ons  and  opinions.  Such  statements,  es>mates,  projec>ons  and   opinions  may  prove  to  be  substan>ally  inaccurate  and  are  inherently  subject  to  significant  risks  and  uncertain>es  beyond  Longboard’s   control.       Although  Longboard  believes  the  Presenta>on  is  substan>ally  accurate  in  all  material  respects  and  does  not  omit  to  state  material  facts   necessary  to  make  the  statements  therein  not  misleading,  Longboard  makes  no  representa>on  or  warranty,  express  or  implied,  as  to  the   accuracy  or  completeness  of  the  Presenta>on  or  any  other  wriNen  or  oral  communica>on  it  makes  with  respect  to  MicrosoB  and   Longboard  expressly  disclaims  any  liability  rela>ng  to  the  Presenta>on  or  such  communica>ons  (or  any  inaccuracies  or  omissions  therein).   Thus,  shareholders  and  others  should  conduct  their  own  independent  inves>ga>on  and  analysis  of  the  Presenta>on  and  of  MicrosoB  and   other  companies  men>oned.       The  Presenta>on  is  not  investment  advice  or  a  recommenda>on  or  solicita>on  to  buy  or  sell  any  securi>es.  Except  where  otherwise   indicated,  the  Presenta>on  speaks  as  of  the  date  hereof,  and  Longboard  undertakes  no  obliga>on  to  correct,  update  or  revise  the   Presenta>on  or  to  otherwise  provide  any  addi>onal  materials.  Longboard  also  undertakes  no  commitment  to  take  or  refrain  from  taking   any  ac>on  with  respect  to  MicrosoB  or  any  other  company.       As  used  herein,  except  to  the  extent  the  context  otherwise  requires,  Longboard  includes  its  affiliates  and  its  and  their  respec>ve  partners,   directors,  officers  and  employees.     For Investment Professional Use Only 2  
  3. 3. ! “The  rumors  of  my  death  have   been  greatly  exaggerated.”     3  
  4. 4. Perception vs. Reality! §  Microso>  currently   suffers  from  a  legacy   percepAon  problem.       §  We  think  Mr.  Market’s   outlook  for  Mr.  So>y   does  not  match  reality.       Reality         MFST   The   MicrosoB   Myth   PercepAon   4  
  5. 5. The Future of Microsoft! §  We  believe  that  Microso>  stock   will  trade  over  $60  within  3   years  and  that  over  the  next  5   years  Microso>  will  re-­‐emerge   as  the  market’s  most  valuable   company.       §  The  catalyst    for  this  growth   will  be  driven  by  a  market   dominance  in  enterprise  cloud   compuAng  and  high  value  tools   and  services  and  a  powerful   differenAaAng  plaOorm  of   Android  +  Windows  hybrid   devices.           $60   $55   Microsoft: MSFT        ?    ?       $50   $45   $40   $35   $30   $25   $20   $15   5  
  6. 6. Why Microsoft?! Today…   Tomorrow…   The  “One  Microso>”  turnaround  strategy   has  successfully  reposiAoned  the  company   for  enormous  future  growth,  innovaAon,   operaAng  efficiency  and  accountability     Microso>  grows  to  dominate  the  global   enterprise  cloud  market             New  incoming  CEO  and  acAvist  board   members  to  maximize  shareholder  value   and  drive  strategy  execuAon     IntegraAon  of  dual  OS  Android  +   Windows  hybrid  devices  is  a  game   change  strategy  for  the  devices   business     Microso>  delivers  a  suite  of  the  most   producAve  and  differenAated  devices  in   the  world  and  the  enterprise  market   adopts  them     6  
  7. 7. Current Market Perception!   §  Microso>   management  has   failed  at  everything   in  the  last  decade   and  Google,   Facebook,  Apple  and   Amazon  are  the  new   technology  leaders.   7  
  8. 8. Market Perception!     §  Culturally  irrelevant   brand  and  legacy   technology  company   of  the  1990s.   8  
  9. 9. Market Perception!     §  Android  and  iOS  are   the  technology  OS   standard  of  the   future  and  Windows   is  a  dying  plaOorm   that  will  destroy  the   Microso>  franchise.   9  
  10. 10. Perception vs. Reality! Percep>on   Reality   Can’t  win  customers   Dominant  and  growing  enterprise   company  with  high  value  products     Dying  with  PCs   Growing  recurring  revenue  base       Losing  to  Google,  Amazon   Office  365  is  massive  success     Irrelevant  in  Cloud     #1  posiAoned  enterprise  cloud  business   growing  exponenAally         Devices  can’t  compete     Game  changer  opportunity  with  Android   +  Windows  hybrid  devices       10  
  11. 11. Forget PCs, Enterprise is the Story!  MicrosoB  Business  Division  (MBD)  +  Server  &  Tools  (S&T)   CAGR      In  $Bn   $45     $40     $35     $30       $25     $20     $15     $10        $5          0   $42.6   +7.4%   Revenue   $23.9   (54%)   EBIT1   (Margin)   $39.2   $32.1   $33.1   $34.2   +8.0%   $16.9   (53%)   $16.5   (50%)   $17.2   (50%)   $20.9   (53%)                2008                              2009                              2010                              2011                              2012   1Excludes  Corporate  Expense  and  2012  aQuanAve  Charge     Source:  Company  Financial  Statements   11  
  12. 12. Enterprise is 70% of EBIT and Growing! ! MBD  +  S&T  as  Percentage  of  Total  Business   %  EBIT   70%             65%               60%                   55%             50%   %  Revenue                2008                                                  2009                                            2010                                          2011                                              2012   These  Businesses  are  now  70%  of  EBIT1   1Excludes  Corporate  Expense  and  2012  aQuanAve  Charge     Source:  Company  Financial  Statements   12  
  13. 13. Growing Enterprise Businesses! Product   Revenue   Growth  Rate   Market  Opportunity   SharePoint   >$2Bn   Growing  Double  Digits   $9.5  Bn  Content  Management,   Project  Management,  and   CollaboraAon  Market   Lync   $400mm   N/A   $17Bn  Unified  CommunicaAons   Market   System  Center   >$1Bn   Growing  >  20%   $4Bn  Server  VirtualizaAon  Market   $19.5Bn  IT  OperaAons  Market   Dynamics   >$1Bn   Growing  Double  Digits   N/A   SQL  Server   >$5Bn   14.6%  YOY  Growth   $28Bn  RDBMS  Market     Windows  Azure   >$1B?   ExponenAal  Growth   MulA-­‐Billion  Dollar  Opportunity   Visual  Studio   >$1Bn   Growing  Double  Digits?   N/A   ApplicaAon  VirtualizaAon   >$1Bn     Growing  Double  Digits?   N/A   Source:  SharePoint  revenue  from  11/12/2012  press  release;  Dynamics  revenue  from  company  financial  statements;  all  other   values  from  MSFT  presentaAon  at  UBS  Tech  Conference,  11/15/2012.  Market  Size  esAmates  from  Gartner.   13  
  14. 14. Building the #1 Enterprise Cloud! §  Trusted  enterprise   brand  and  partner     §  Corporate  IT  managers   prefer  Microso>     §  Incumbent  Advantage     §  Enterprise  Agreements     §  #Winning     14  
  15. 15. Office 365 Facts! Office  is  not  Windows!     §  Office  does  not  need  Windows   to  thrive.     §  Ubiquitous  and  familiar  around   the  world.  750¹  million  users   worldwide.     §  Office  365  plaOorm  strategy   has  successfully  protected  the   crown  jewel.     §  Improved  revenue  and  margin   opportunity  in  the  cloud.   1Source:  Steve  Ballmer,  Worldwide  Partner  Conference  2011     15  
  16. 16. Office 365 Facts! Win-­‐Win     Case  Study:  ValueAct  Capital   §  30  users   §  4  Year  upgrade  cycle   §  §  §  §  §  Annual  Cost  Per  User:   $153   Server  Hardware     Windows  Server  2008R2     Exchange  Server  2010                              Exchange  CALs                                                Office  2013   $25   $6   $6   $16   Less  reason  to  consider  Google   Cost  savings  for  us   Easier  to  deploy  latest  version   Revenue  upli>  to  Microso>  (20%)   SAckier  relaAonship  for  future  products   $150   With  Addi>onal  Upside:    $128   $150   $100                    Transac>onal                    Office  365   Office  365   Small  Business   Premium   §  Combat  piracy  (42%  of  all  so>ware   was  obtained  through  piracy  in   2011  according  to  the  BSA1)   §  New  use  cases  (e.g.  email  for  non-­‐ knowledge  workers)   12011  BSA  Global  So>ware  Piracy  Study,  May  2012     Source:  ValueAct  Capital  PresentaAon   16  
  17. 17. Future of Microsoft Device Strategy! Windows  +  Android  Hybrids     §  Game  Changer   §  One  Device,  Dual  Boot   §  Most  producAve   §  Most  choice   §  Highest  Value   §  Enterprise  Demand   17  
  18. 18. Summary! §  Microso>  is  a  dominant   and  growing  global   enterprise  technology   company  which  has   adjusted  its  strategy  with   modern  ideas,  innovaAon   &  leadership.     §  The  new  “One  Microso>”  is   well  on  its  way  to  re-­‐ emerging  as  the  largest   market  capitalizaAon   company  in  the  years   ahead.   18  
  19. 19. About Longboard! An  alterna>ve  approach  to  naviga>ng  the   investment  ocean       Longboard  is  an  asset  management  firm   specializing  in  trend  following  strategies.  The   firm’s  principals  have  been  invesAng  in  and   researching  trend  following  strategies  since  the   late  1990s.       We  manage  both  private  investment  funds  and   mutual  funds  applying  our  trend  following   investment  style.             “Trends  come  like  a  series  of  ocean   waves,  bringing  the  high  Ade  when   things  are  good  and,  as  condiAons   recede,  the  low  Ade  appears.  These   trends  come  unexpectedly,   unpredictably,  and  they  have  to  be   weathered  with  temperance,  poise,  and   paAence-­‐  good  or  bad.”     Jesse  Livermore,  Reminiscences  of  a   Stock  Operator   19  
  20. 20. Contact Us! To  learn  more  about  Longboard,  connect  with  us  at:      info@longboard-­‐am.com                602.910.6961                  2355  East  Camelback  Road,  Suite  750              Phoenix,  Arizona  85016                  www.longboardmutualfunds.com                www.longboard-­‐am.com                                                                                       20  

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