By Tiernan Ray
Pacific Crest’s Brendan Barnicle today notes that he has been on a “non-deal roadshow” withMicrosoft (MSFT) executives that has left him “more constructive” on the stock because of what appears to be increasing success with its cloud computing initiatives.
Barnicle, who has a Sector Perform rating on the shares, writes that Microsoft’s “Azure” hosted software service, a so-called public cloud initiative, appears to be benefitting from use of open-source software, not just Microsoft’s own code:
We were surprised to learn that about 20% of the development on Azure is not Windows-based. Because Azure supports several Open Source initiatives, Azure is attracting more than just Windows developers. Given the increasing diversity of the developer community, Azure’s open- ness will be important for future growth. In addition, Azure works closely with Hadoop, which is speeding its big data efforts. As a result, Azure is having success in niche markets, particularly in specialized mobile applica- tions. At this point, we believe that Microsoft’s success in Azure is underappreciated. Azure is likely to be more competitive with Amazon Web Services (AWS) than most investors expected. In addition, Microsoft can use Azure to support both public and private cloud deployments, which will be very attractive to large enterprises. Many large enterprises will have to rely on pri- vate clouds to meet regulatory and security requirements. Currently, AWS and other competitors cannot support both public and private clouds.
The result may be that despite fears over the PC market, the focus is increasingly on success in the cloud, rather than Windows:
We were surprised by how much investors focused on the company’s recent success in the cloud with Azure and in SaaS with Office 365. While investors asked customary questions about Windows, the greatest interest was around the recent announcements that the company’s Az- ure and Office 365 businesses had each reached $1 billion in revenue.
