Analysis says Microsoft's foray into cloud computing is bad for the company

The December 20 news, according to foreign media reports, Microsoft is in the field of cloud computing, which will help the company and Google, Apple and cloud computing service provider Salesforce.com competition, but also will damage its profit margins.

After becoming a paying user, corporate customers can use Microsoft's cloud computing software to do many things, such as managing the company's spreadsheets and Web sites. The new service also helps users watch TV shows and edit photos over the Internet.

Heather Bellini, an analyst at Goldman Sachs, points out that while this may be good news for customers, the cost, combined with other costs, as cloud computing software stores and runs in Microsoft's data center, means Microsoft may not be able to meet its profit forecasts for fiscal year 2012.

Maynard, a rich-country securities analyst, also said that the era of Microsoft's hyper-profit margins was gone. "Margins aren't as high as they used to be," he said. ”

Microsoft's profit margin for fiscal 2011 fell to its lowest point in 22 years and is expected to fall further. The average gross profit margin for Microsoft's fiscal year 2012 is expected to fall by 1.6% to 76%, according to a Bloomberg compiled analyst. Microsoft's gross profit margin for fiscal 2011 has fallen 2.4%.

The challenge for Microsoft's profitability comes from CEO Steve Ballmer's decision to invest in a new business in recent years, such as adding new content to the Xbox, and paying 8.5 billion of billions of dollars to buy Skype, the internet phone company.

Rising costs

As more and more customers choose to use cloud computing services, the pressure from Microsoft's rising costs is expected to continue beyond this year. Microsoft provides cloud computing services, must use its own server support software, and through the Internet to provide services, so that the cost of customers to store and run the software to Microsoft's head.

Microsoft traditionally sells packaged software, and once developed, the cost of manufacturing and selling is low. In order to attract more customers to use its cloud computing services, Microsoft must bear the cost of running the data center. These costs include power supply, cooling, property, and maintenance of server costs.

The cost of cloud computing accounts for 15% to 25% of Microsoft's revenues, Sanford Bernstein analyst Mark Moerdler, an American investment firm. ' It's about 10% higher than the standard suite software, ' he said.

Bellini, Goldman Sachs, said analysts did not take into account the impact of a sharp rise in Microsoft's sales costs when predicting Microsoft's performance in the 2012 fiscal year of June, which could lead to Microsoft's inability to meet its earnings forecasts for the 2012 fiscal year. Although Bellini cut Microsoft's gross margin forecasts and cut Microsoft's Full-year earnings forecasts by 9 cents, she said the downgrade might not be enough.

Microsoft declined to comment.

The challenge of growth

Walter Price, an RCM Capital management firm portfolio Manager, said the pressure on profit margins had led some investors to be cautious about Microsoft shares and could put pressure on Microsoft's shares in the next few months.

Microsoft's share price rose 1.7% to $26 in U.S. time December 16, down 6.8% since the year.

This year, Microsoft's profit growth faces many challenges. The European debt crisis and weak economic recovery have prompted government and financial clients to cut spending, while the PC industry has also been affected by the decline in hard drive output caused by the floods in Thailand.

Gartner, a market-research firm, had predicted that 2012 growth in corporate software and computer spending would be lower than this year, and it now says it is likely to downgrade its forecasts further by the end of this month. Hewlett-Packard, the world's largest computer maker, said last month it found companies were restricting spending.

Xbox content Cost

The company's product cycle shows that its Windows software and Office software business will experience a slowing growth year, says Rick Sherlund, an analyst at Nomura Securities. As customers wait for the launch of a new generation of Windows operating systems, the two businesses will grow more slowly in fiscal year 2012. Sherlund expects Microsoft to launch a new generation of Windows operating systems next October and will likely launch office software for touch-screen products later.

At the same time, Microsoft's business costs are rising. Microsoft's Xbox game sales are booming, but their production costs are higher than software, and they are paying higher licensing costs for the content of the Xbox Live service.

In addition, the acquisition of Skype increased the demand for consultancy services in its server business, and the cost of Microsoft's collaboration with Yahoo in Search, which led to a sharp rise in Microsoft's costs.

The need for scale

Microsoft said in October this year that, including Skype's impact, Microsoft's operating costs for the 2012 fiscal year will be as high as $29.2 billion trillion, higher than the previous forecast of $28.6 billion trillion.

Controlling the cost of cloud computing will be critical, depending on how efficiently Microsoft runs its vast data center. Moerdler pointed out that Microsoft's cloud computing services need to attract a large number of customers to achieve economies of scale. He also believes Microsoft needs to pay attention to the energy and cooling costs of its data centers.

"They should be able to improve the efficiency of their data centers to make more profits, so that even if margins fall, their earnings per share will increase," says Moerdler. "Moerdler's view is consistent with Microsoft's own predictions since it started its cloud computing service," he said.

(Responsible editor: Lu Guang)