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Microsoft and SAP Partnership to Aid Digital Transformation

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Microsoft Corp. (MSFT - Free Report) and SAP SE (SAP - Free Report) recently expanded their partnership to enable a seamless transition to cloud infrastructure for enterprises and better management of scalable workloads and critical applications.

The companies will use each other’s solutions as well. SAP’s privately managed cloud service known as SAP HANA Enterprise Cloud will run on Microsoft’s cloud platform Azure that will enable customers to deploy SAP S/4HANA in a secured cloud environment.

Moreover, Microsoft will be using SAP S/4HANA on Azure for its own financial processes. Additionally, SAP will transfer the critical systems of its internal business to Azure. SAP Ariba, which is already deployed on Azure, will be further enhanced.

The companies will also come together with innovative solutions and deliver joint support services to cater to the customer needs efficiently.

Microsoft in Cloud

In a recent report, Gartner stated that the public cloud services market is expected to grow from $209.2 billion in 2016 to $383.3 billion by 2020. Given the widespread adoption of cloud, Microsoft’s initiatives to tap this growing sector seem apt. This partnership with SAP is also expected to provide the company with a competitive edge against cloud market leader Amazon Web Services.

The adoption of Microsoft’s Azure has been strong as evident from its strong customer base, which witnessed an 89% year-over-year increase at constant currency in fiscal first-quarter 2018. Azure has already been selected by the likes of Costco, Symantec (SYMC - Free Report) , Bank of America Corporation (BAC - Free Report) , TD Bank and Sumitomo Mitsui Banking Corporation. Data center expansion continues with Azure now available in 42 regions globally, more than any other cloud provider.

Other Growth Prospects

Apart from Azure, strong adoption of Office 365 and Windows 10 is also helping the company gain traction. Notably, the recent collaboration between the company’s Cortana and Amazon's Alexa is also a positive for the company’s long-term results. Additionally, the two companies have teamed up to launch a new deep learning library called Gluon, which is anticipated to be a growth driver as well.

We believe that Microsoft’s strategic initiatives to enter the augmented reality (AR) and virtual reality (VR) market with the acquisition of Altspace VR and launch of mixed reality headsets will be positives.

Additionally, Microsoft’s recent blockchain deals with Hapoalim and Accenture and its Coco framework are tailwinds. Also, the company’s involvement in Quantum Computing is anticipated to be another key catalyst in the long run.

Zacks Rank

Microsoft has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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