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Microsoft Ramps Up Azure Government Portfolio Ahead of JEDI

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Microsoft (MSFT - Free Report) Azure’s corporate vice president, Julia White recently announced that it is increasing support to various cloud services for government, in a blog post.

Notably, the announcement is timed favorably with the impending request for proposal (“RFP”) deadline of Oct 12 for Pentagon’s Joint Enterprise Defense Infrastructure (“JEDI”) cloud contract bidding. The 10-year contract is estimated to be worth $10 billion.

The major takeaways of the announcement were the availability of Azure Government Secret regions from the first quarter of 2019, new Azure Data Box, Data Box Heavy and Data Box Edge to government customers, and expanding Federal Risk and Authorization Management Program (FedRAMP) support for various U.S. Government agencies.

Notably, shares of Microsoft have returned 30.3% year to date, substantially outperforming the industry’s rally of 25.3%. The stock has also fared better than the S&P 500 index’s rise of 9.2%.

Briefing About the JEDI Deal

The U.S. Department of Defense (“DoD”) is headquartered at Pentagon, in Arlington County, VA. DoD intends to develop JEDI cloud by means of a ten-year contract worth $10 billion. This will be awarded to one of the several cloud vendors bidding for it.

The announcement which had surfaced around January has only intensified the cloud war. Concerns pertaining to President Trump’s anti-Amazon (AMZN - Free Report) tweets or Oracle’s (ORCL - Free Report) anxiety regarding the policies have been doing rounds since then.

However, Pentagon assured that the contract will be finalized in a fair and transparent manner. As the deadline for RFP draws closer, the cloud vendors are taking their business pretty seriously.

It may be noted that Alphabet’s (GOOGL - Free Report) Google recently opted out from bidding for the JEDI deal citing “value” concerns.

We believe Microsoft’s proactive stance on enhancing Azure’s government-related services with artificial intelligence (AI) and robust edge capabilities poises it as one of the prime contenders to bag the deal.

Azure Cloud Platform Gaining Competitive Edge

Per psmarketresearch data, the global government cloud services market is projected witness a CAGR of 15.4% during 2018-2023, to reach $49.2 billion from approximately $20.86 billion estimated in 2017.Given the widespread adoption of government cloud, Microsoft’s initiatives to capitalize on this growing sector seem apt.

As of September 2017, Microsoft leads in offering FedRAMP certified services with 12 services at the Moderate Impact Level, and 32 services at the High Impact Level. As an icing on the cake, Azure has a dedicated government portal for the US Department of Defense.

The adoption of Microsoft’s Azure has been robust as evident from its strong customer base. Azure has already been selected by the likes of Alaska Department of Transportation, Duo+ based out of Netherlands, South African government unit Department of Science and Technology, to name a few.

With the ramped up Azure Government-focused solutions, Azure has taken the fight to big players like Amazon Web Services (“AWS”), IBM Cloud and Oracle Cloud, among other possible bidders for the JEDI contract.

Like Azure, AWS has a dedicated portal for governments, named AWS for Governments. AWS has assisted governments and agencies, alike with its cloud capabilities, including Government of Singapore, agencies like NASA, UK Ministry of Justice, to mention a few.

Coming to IBM Cloud, it continues to be leveraged by governments and agencies, including the major AU$1 billion deal with the Australian government to become its technology partner.

Oracle, as well is leaving no stone unturned to win the deal despite its late entry in the cloud market. Notable agencies, comprising Department of Finance, Abu Dhabi; New South Wales Department of Justice, among others, leverage the company’s cloud solutions.

Nevertheless, Microsoft is anticipated to lead the roster following the new enhancements. As to which cloud vendor bags the lucrative deal remains to be seen. Meanwhile new developments pertaining to enhancing government cloud services have been gaining steam.

Bottom Line

At Ignite 2018, the company announced several enhancements pertaining to Microsoft Azure. Notably, Azure revenues soared 85% at constant currency on a year-over-year basis in the fourth quarter of fiscal 2018. Data center expansion continues with Azure now in 54 regions globally.

Per latest Synergy Research Group article, spending on cloud infrastructure services in the second quarter of fiscal 2018 witnessed a year-over-year increase of 50%. Per the study, Microsoft’s cloud services only trail AWS.

The new announcements are expected to lure government agencies, consequently bolstering Azure’s growing clout, in turn driving the company’s top-line growth.

Zacks Rank

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

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