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MS Office 365 Uptake Continues

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The world’s largest software maker  Microsoft Corp. (MSFT - Free Report) is seeing success in the government and education sectors. Its Office 365 suite won eight customers including the City of Kansas City, Mo; the City of Seattle; Dupage County, the University of Miami; the University of Colorado, and King County, Wash among others.

The suite won on different counts at these players. While the Kansas City government and the City of Seattle chose the solution to increase operational efficiency, reduce IT costs and lower carbon footprint , the University of Miami chose it to serve as a common platform of communication for its 40,000 odd students. The Miller School of Medicine’s adoption of cloud services makes sense as it is situated in an annual hurricane zone. The adoption of the service will ensure business continuity even in the face of adverse conditions.

The Office 365 suite equips these organizations with advanced technologies, thereby improving operational efficiency and resource allocation. It also facilitates communication and collaboration among organizations and at the same time reduces IT expenses of government and education organizations and their partners across the world.

Office 365 is sold as a service and therefore generates ongoing revenues for Microsoft instead of a one-time licensing fee. Launched in 2011, the new Office comes with the traditional word processing, spreadsheets and email programs.

Microsoft’s Office 365 is gaining traction in the market as it recently launched its online version focusing on touch devices. Further, it is being deployed at the stores of retailers such as J. C. Penney Company Inc. (JCP - Free Report) and U.K.-based Tesco as well as government departments such as the Texas Department of Information Resources, which chose the software for inter-departmental activities. The latest to join the bandwagon is the International Federation of Red Cross and Red Crescent Societies (IFRC), which also signed a MoU with Microsoft. Further, Microsoft’s software expanded in the healthcare sector. It also launched a specialized version for businesses as well as for student communities. 

Currently, just like other PC makers, Microsoft is also battling the slump in the PC market caused by the sluggish economy. In addition, the popularity of smartphones and tablets from Apple (AAPL - Free Report) and Google are cannibalizing PC market sales, further deteriorating the scenario. Whether it can come out of the slump on the back of its new software and OS is a wait and-see game.

According to research conducted by IDC, cloud-based services may grow into a $100.0 billion market by 2016, representing a compound annual growth rate (CAGR) of 26.0%. Cloud services are expected to drive growth in IT going forward, generating 41.0% of overall growth in IT by 2016. Thus, the strengthening of Microsoft’s position in the segment is encouraging as the PC market is showing no signs of revival in the near future.

Microsoft reported revenues, excluding deferrals, of $21.46 billion in the second quarter of fiscal 2013, which were up 34.0% sequentially and 2.7% from last year, in line with our estimates. All except the Entertainment & Devices segment grew both sequentially and from the year-ago quarter. Entertainment & Devices were down year over year.

Microsoft has a Zacks Rank #3 (Hold).

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