Microsoft Gains Defense Deal

Microsoft Corp. (MSFT - Analyst Report) recently won a three-year Joint Enterprise Licensing Agreement for its latest software from the U.S. Department of Defense (DoD). The $617.0 million contract will cover 75% of the defense personnel from the U.S. Army, U.S. Air Force and Defense Information Systems Agency (DISA).

As per the agreement, the software maker will provide the latest versions of Windows 8 OS, Microsoft Office 2013 as well as SharePoint 2013, a file-sharing platform, and will cover 1.5 million of the Pentagon’s computers.

A few months back, Microsoft won a separate 3-year software licensing agreement worth $700.0 million from the U.S. Navy.

The latest agreement will provide all the three departments the benefits of accessing the latest Microsoft software and tools to DoD’s large workforce of servicemen. The agreement will open up a new channel of communication (SharePoint 2013), through which sensitive business intelligence and reports can be transferred among the servicemen at a faster rate. Similarly, Microsoft Office 2013 and Windows 8 OS will equip the personnel with the productivity tools required in their daily professional lives.

Microsoft claims that since the launch of its Windows 8 OS, 60.0 million licenses have been sold. These may not be very strong numbers for the world’s leading OS but given the radical changes made by Microsoft in this version, consumers will take some time to adapt and adopt. This is what is slowing down sales. Therefore, a gradual uptick in 2013 may be expected, which will of course be tempered by PC market sluggishness.

Microsoft has been battling the slump in this market, impacted by an uncertain global economic climate. Further, smartphones and tablets from Apple Inc. (AAPL - Analyst Report) and Google Inc. (GOOG - Analyst Report) have been cannibalizing PC market sales. Thus, winning such defense contracts from the government may ease some pressure on Microsoft going forward.

Microsoft reported revenue, excluding deferrals, of $16.01 billion in the first quarter of fiscal 2013, down 11.4% sequentially and 7.9% from the year-ago period. Revenues also missed the consensus by 2.5%.

Microsoft, Apple and Google all have a Zacks Rank #3 (Hold).