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Microsoft in May: Acquisition, Build Conference, Analyst Views & More

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The hottest Microsoft (MSFT - Free Report) news in May was its Build conference for developers, but there were also rumors about a new cheaper Surface, as well as analysts weighing in on Microsoft.

Acquisition of AI Startup

Microsoft has acquired a startup called Semantic Machines that’s been developing technology for voice-enabled agents to operate much like Alphabet’s (GOOGL - Free Report) Duplex. The goal is to enhance its Cortana assistant and chatbots that are already loose on social networks. Microsoft doesn’t have its own smart speaker device yet, but its agreement with Harman Kardon in 2016 enabled it to integrate Cortana into Harman’s Invoke smart speaker.

Key talent joining Microsoft as a result are UC Berkeley professor Dan Klein, Stanford’s Percy Liang and CTO Larry Gillick, who was chief speech scientist behind Apple’s Siri back in 2013 and 2014.

“Combining Semantic Machines’ technology with Microsoft’s own AI advances, we aim to deliver powerful, natural and more productive user experiences that will take conversational computing to a new level,” said Microsoft AI CTO David Ku.


Adaptive Controller: In partnership with The AbleGamers Charity, The Cerebral Palsy Foundation, SpecialEffect, Warfighter Engaged and Craig Hospital, Microsoft announced a new adaptive controller for both the Xbox console and PCs to commemorate this year’s Global Accessibility Awareness Day. When it launches later this year, the controller will replace the standard directional pads, triggers and A/B/Y/X buttons with two large buttons and a number of ports on the back.

Depending on the kind of disability of the player, the buttons can be attached to a wheelchair or table and can also be handled by the feet. At the Build conference this year, Nadella also announced a special initiative for the disabled with an initial funding of $25 million to develop AI for people with disabilities, whether temporary, permanent or situational.  

New Surface Tablet: A Bloomberg report citing unnamed sources says that Microsoft will launch a Surface-branded $400, 10-inch tablet with rounded edges (as in the iPad) and running on a more powerful Intel (INTC - Free Report) processor in the second half of this year. Surface RT, its first attempt at a cheaper tablet, launched in 2012 and used a NVIDIA chip (NVDA - Free Report) but didn’t quite take off because of the limited number of apps it could run. Given the price tag and the value of other components being used, it appears that Microsoft may have to compromise on the display.

Conversational AI: At its Build developers’ conference, Microsoft announced a major update that added 100+ features including easier debugging, authentication management with third-party apps and much more to further build and customize its already huge population of 30K active conversational bots handling 30 million messages for companies across a broad range of industries like Macy’s, Asiana Airlines, Stack Overflow, KPMG, Telefonica, HP and UPS. The tools don’t work with any offerings from Google, Apple (AAPL - Free Report) or Amazon (AMZN - Free Report) , so effectively, they are designed to increase stickiness within Microsoft’s ecosystem.

Microsoft Pay: At Build, Microsoft announced that it will be integrating its digital wallet service (later dubbed Microsoft Pay) with Outlook so that bills received through its email service can be paid right there and then. Stripe (using Stripe Connect) and Braintree will be among the payment processors powering the service with billing and invoicing services such as Zuora, FreshBooks, Intuit, Invoice2Go, Sage, Wave and Xero among the first to use the feature.

The Edge and the Cloud: At Build 2018, Microsoft outlined its focus on IoT devices that are expected to touch 20 billion by 2020 and be pretty much everywhere from homes to work to construction sites, to malls, you name it. With Azure IoT Edge, customers get greater control and flexibility with their applications at the edge so their always-on devices can take quicker decisions even without cloud connectivity, which could be why China’s DJI, the world's biggest drone company, selected Microsoft for its commercial drone and SaaS operations and to develop solutions using Azure IoT Edge and Microsoft's AI services to enable new scenarios across agriculture, construction, public safety and more.

Qualcomm will also offer hardware acceleration through a jointly developed AI developer kit that will facilitate delivery of Azure services, such as machine learning, stream analytics and cognitive services at the edge. Other details on Build are available here.

Analyst View

Moody’s: According to Moody’s analysts headed by Stephen Sohn, “Microsoft will continue to achieve more operating leverage off of stronger revenue growth, as the company's significant investments over last few years level off while new cloud offerings gain strong adoption.” Microsoft is expected to generate about 28% of EBITDA growth across the sector, being one of the main beneficiaries of industrywide drivers such as “data center infrastructure, database, and cloud-based productivity software, which are partially offsetting modestly declining consumer demand for personal computers."

Media Analyst: Porter Bibb of Media Tech Capital Partners has said that Microsoft will announce its purchase of Netflix (NFLX - Free Report) within the next 18-24 months. He says that Netflix doesn’t have a viable operating model, with every other movie bringing in a significant loss, but being with Microsoft, there won’t be a dearth of funds for original content.

On the other hand, there is some pretty stiff competition if it wants to go it alone, from Amazon, which has many more subscribers and Walt Disney, which has the content to be successful but is just getting ready to launch its streaming service (he expects the AT&T-Time Warner deal to materialize). Microsoft’s benefit will be an entry into streaming, where unlike Apple and Google, it doesn’t have any offering to date.



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

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