MSFT Presentation - Team B

SkyDrive

Start Team B

Overview

Overview Why buy? Valuation Risks Summary

Microsoft Products Khalil Abdulnour

Overview Why buy? Valuation Risks

Microsoft Ecosystem Khalil Abdulnour

Tablet

Cloud Phone

Skype

Summary


Recommendation & Highlights Khalil Abdulnour

Feb-12

Feb-12

Mar-1

2

Mar-1

2

Mar-1

2

Apr-12

Apr-12

Apr-12

May-1

2

May-1

2Jun-12

Jun-12Jun-12

Jul-12Jul-1

2

Aug-12

Aug-12

Aug-12

Sep-12

Sep-12

Oct-12

Oct-12

Oct-12

Nov-12

Nov-12

Dec-12

Dec-12

Dec-12Jan-13

Jan-13Jan-13

Feb-13

Feb-13

$-

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

Target

Current

Earnings Release Upside Potential: 46%

Dividend Increase

Windows 8 Launch

1. New Markets2. Cross Selling Opportunities3. Attractive Dividend Yield

Price Target: $40.02

Summary

SkyDrive

Start Team B

Why Buy?


Smartphone Shipments

Tablet Shipments

2010 2011 2012 2013E 2014E 2015E 2016E0

200

400

600

800

1000

1200

1400

1600 Global Mobile Shipments (millions)

Booming Mobile Demands Richard Jimenez

80% of IT spending is driven by enterprises

Bring Your Own Device trend:• 94% of organizations to have established

BYOD policy by end of 2013

Apple + Google devices conflict with established Windows infrastructure

Businesses have high demand for mobile:

Summary

Overview Why buy? Valuation RisksWhy buy?

Productivity Advantages• Complete Microsoft Office• Full PC Functionality

Compatibility with Existing Systems

Integration into Ecosystem

Variety of OEM Support

Productivity Appeal Richard Jimenez

Microsoft products have competitive advantage:

Summary


Windows Azure Richard Jimenez

Microsoft Security Advantages

• Interview with German IT Expert: • “Strict adherence to data protection

procedures”• “MS is taking privacy and data

protection seriously, where as Google etc. are really not”

• For Example: Physical destruction of defective hard drives

• IT Consultants: “Enterprises love Azure for Security”

Businesses prefer Azure because of superior security:

Biggest Cloud Concerns

Summary

Overview Why buy? Valuation Risks Conclusion

Ecosystem Richard Jimenez

SkyDrive

Start Team B

Financial Analysis and Valuation

Financial Analysis


Mariusz Brzyzek

Summary

2012A 2013F 2014F 2015F 2016F 2017F -

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Free Cash Flow 1.9% CAGR 2012-2017

$29,197 $22,645 $25,581 $29,519 $31,051 $32,074


Research and Development Mariusz Brzyzek

Summary

Fiscal year 2012

R&D Spending

$9.81 billion

Microsoft

$3.38billion

Apple$6.59billion

Google

Acquisitions


Mariusz Brzyzek

Summary

Increasing Dividends


Mariusz Brzyzek

Summary

2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F 2016F 2017F $-

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

Dividends per share

$.35 $.40$.44

$.52 $.52

$.64

$.80

$.92$.98

$1.05 $1.11$1.19

3.3% Current Dividend Yield15% 5 year CAGRDividends Per Share

Share Repurchases


Mariusz Brzyzek

Summary

Jan-

30-2

008

Mar

-18-

2008

May

-05-

2008

Jun-

20-2

008

Aug-0

7-20

08

Sep-2

4-20

08

Nov-1

0-20

08

Dec-2

9-20

08

Feb-1

7-20

09

Apr-0

3-20

09

May

-21-

2009

Jul-0

9-20

09

Aug-2

5-20

09

Oct-1

2-20

09

Nov-2

7-20

09

Jan-

15-2

010

Mar

-05-

2010

Apr-2

2-20

10

Jun-

09-2

010

Jul-2

7-20

10

Sep-1

3-20

10

Oct-2

8-20

10

Dec-1

5-20

10

Feb-0

2-20

11

Mar

-22-

2011

May

-09-

2011

Jun-

24-2

011

Aug-1

1-20

11

Sep-2

8-20

11

Nov-1

4-20

11

Jan-

03-2

012

Feb-2

1-20

12

Apr-0

9-20

12

May

-24-

2012

Jul-1

2-20

12

Aug-2

8-20

12

Oct-1

5-20

12

Dec-0

4-20

12

Jan-

23-2

013

8.00b

8.20b

8.40b

8.60b

8.80b

9.00b

9.20b

9.40b

Shares Outstanding

$5.6 of $40 billion left

(In millions)Three Months Ended

December 31,

Six Months EndedDecember 31,

2012 2011 2012 2011

Shares of common stock repurchased 58 39 91 78 Value of common stock repurchased $ 1,607 $ 1,000 $ 2,607 $ 2,000

Sum of Parts DCF

Model

PER Model

Price Target

70 %

30 %


Valuation Mariusz Brzyzek

Summary

Price Target$43.51


2012A 2013E 2014E 2015E 2016E 2017ETerminal

Value

Free cash flow 29,197 22,645 25,581 29,519 31,051 32,074 357,422

Valuation: DCF Mariusz Brzyzek

Summary

Price Target$31.85

2012 A 2013 F 2014 F 2015 F 2016 F 2017 FNet Income 16,978 22,295 23,659 25,362 26,788 28,511

15.00 €

20.00 €

25.00 €

30.00 €

35.00 €

40.00 €

45.00 €

50.00 €

P/E Band

16x

14x

12x

10x

8x

Microsoft


Valuation: PER Mariusz Brzyzek

Summary

DCF Model

PER Model

Price Target

70 %

30 %

$43.51

$31.85

$40.02


Valuation Mariusz Brzyzek

Summary

SkyDrive

Start Team B

Risks

Competition among ecosystemsCompetition among ecosystems


Risks

Extensive range of firms

Vilma Solano

Summary

Acquisitions


Risks

New products and services

Acquisitions

Vilma Solano

Summary


EconomyGlobal Business Vilma Solano

InflationRecession

Summary

SkyDrive

Start Team B

Summary


Field Work Max Felderhoff

Field Work

Summary


Sensitivity Analysis Max Felderhoff

Terminal Value Perpetuity Growth Rate

Cost of Equity

-1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%


Cost of Equity

-1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00%

7.0% $ 41.75 $ 42.62 $ 43.62 $ 44.76 $ 46.10 $ 47.69 $ 49.59

7.5% $ 40.50 $ 41.26 $ 42.12 $ 43.10 $ 44.23 $ 45.55 $ 47.11

8.0% $ 39.38 $ 40.04 $ 40.78 $ 41.63 $ 42.59 $ 43.70 $ 45.00

8.5% $ 38.35 $ 38.93 $ 39.58 $ 40.32 $ 41.15 $ 42.10 $ 43.19

9.0% $ 37.41 $ 37.92 $ 38.50 $ 39.14 $ 39.86 $ 40.68 $ 41.61

9.5% $ 36.54 $ 37.00 $ 37.51 $ 38.07 $ 38.70 $ 39.41 $ 40.22

10.0% $ 35.74 $ 36.15 $ 36.60 $ 37.10 $ 37.66 $ 38.28 $ 38.98


Cost of Equity

-1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00%

7.0% $ 41.75 $ 42.62 $ 43.62 $ 44.76 $ 46.10 $ 47.69 $ 49.59

7.5% $ 40.50 $ 41.26 $ 42.12 $ 43.10 $ 44.23 $ 45.55 $ 47.11

8.0% $ 39.38 $ 40.04 $ 40.78 $ 41.63 $ 42.59 $ 43.70 $ 45.00

8.5% $ 38.35 $ 38.93 $ 39.58 $ 40.32 $ 41.15 $ 42.10 $ 43.19

9.0% $ 37.41 $ 37.92 $ 38.50 $ 39.14 $ 39.86 $ 40.68 $ 41.61

9.5% $ 36.54 $ 37.00 $ 37.51 $ 38.07 $ 38.70 $ 39.41 $ 40.22

10.0% $ 35.74 $ 36.15 $ 36.60 $ 37.10 $ 37.66 $ 38.28 $ 38.98

Summary

30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 530%

2%

4%

6%

8%

10%

12%

14%

16%


Monte Carlo Simulation Max Felderhoff

Target Price Distribution

Summary

SkyDrive

Start Team B

Thank you!Q & A

Altman Z Score of MSFT over time, + vs Competitors

Balance Sheet Beta Calculation Capital Structure Breakdown Cash Balance Cloud Costs Cloud Gross Margin Cloud Revenue Cloud Services Correlation with Europe Correlation with US Cost of Equity Debt Structure Breakdown Economic Outlook Forecast Regression Forecasted EPS + DPS Geographic Segments Global Correlation Hedging strategy

Income Statement Lawsuits Main Competitors Margins compared to competit

ors Market Shares Montecarlo Analysis Multiples

compared to competitors Net Working Capital Chart Office Timeline Online Service Division Ownership summary PC Penetration Piracy Rates – BRIC Price to Earnings Pricing - Office Projected Growth Projections by Segment Public Cloud Concerns Ratios

Recent Events and Aquisitions Return on Equity Revenue by segment Revenue Growth Forecasts Risk Categories Risk Matrix Seasonality in Microsoft's Sales Security – Cloud Security - Windows Sensitivity Analysis Server and Tools TImeline Shift from PCs to Mobile Statement of Cash Flows Street Consensus Supply Chain - Customers Surface Production Tablet Shipments Terminal Value Assumptions Top Holders Valuation Windows Timeline Windows Phone Market Share


Appendix

Summary

6.2% Projected Revenue CAGR 2012-2017 2012 A 2013 F 2014 F 2015 F 2016 F 2017 F

73,723 77,654 83,607 88,828 94,324 99,592

5.5% Projected EBITDA CAGR 2012-2017 2012 A 2013 F 2014 F 2015 F 2016 F 2017 F

30,714 31,402 33,349 35,692 37,697 40,067

10.9% Projected Net Income CAGR 2012-2017 2012 A 2013 F 2014 F 2015 F 2016 F 2017 F16,978 22,295 23,659 25,362 26,788 28,511

Projected Growth

2010 2011 2012 2013 F 2014 F 2015 F 2016 F 2017 F -

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Total Revenues

EBITDA

Net Income

Appendix

Multiples vs. Competitors

Jan-31-2012

Feb-27-2012

Mar-25-2012

Apr-21-2012

May-18-2012

Jun-14-2012

Jul-11-2012

Aug-07-2012

Sep-03-2012

Sep-30-2012

Oct-27-2012

Nov-23-2012

Dec-20-2012

0.00x

5.00x

10.00x

15.00x

20.00x

25.00x

P/LTM EPS

MSFTAAPLINTCGOOGORCLQCOM

Feb-01-2012

Mar-01-2012

Apr-01-2012

May-01-2012

Jun-01-2012

Jul-01-2012

Aug-01-2012

Sep-01-2012

Oct-01-2012

Nov-01-2012

Dec-01-2012

Jan-01-2013

0.00x2.00x4.00x6.00x8.00x

10.00x12.00x14.00x16.00x

EV/EBITDA


Jan-31-2012

Feb-28-2012

Mar-27-2012

Apr-24-2012

May-22-2012

Jun-19-2012

Jul-17-2012

Aug-14-2012

Sep-11-2012

Oct-09-2012

Nov-06-2012

Dec-04-2012

Jan-01-2013

0.00x

5.00x

10.00x

15.00x

20.00x

25.00x

30.00x

35.00x

P/ LTM Normalized EPS


Appendix

Margins vs. Competitors

20022003

20042005

20062007

20082009

20102011

2012 0.0%

10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%

Gross Margin

Microsoft

Competitors Average

20022003

20042005

20062007

20082009

20102011

2012 0.0% 5.0%

10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0%

EBIT Margin

Microsoft

Competitors Average

20022003

20042005

20062007

20082009

20102011

2012 0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Net Income Margin

Microsoft

Competitors Average

Appendix

Terminal Value Assumptions

Perpetuity

.5%

EBITDA Multiple

8

50 %

50 %

Terminal Value

2017FCF (1+.005)(.0868-.005)PV2017=

2017FCF= 32,074$

PV2017= 273,315$

0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 800

10

20

30

40

50

60

70

2012 Acquisitions EBITDA Multiples

EBITDA Multiple

Num

ber o

f firm

s

Appendix

Beta Calculation

-0.15 -0.1 -0.05 0 0.05 0.1 0.15

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

0.2

S&P 500 geo Line Fit Plot

MSFT GeoPredicted MSFT Geo

S&P 500 geo

MSF

T G

eoSUMMARY OUTPUT

Regression StatisticsMultiple R 0.711546807R Square 0.506298858Adjusted R Square 0.506102477Standard Error 0.012093432Observations 2516

ANOVAdf SS MS F Significance F

Regression 1 0.37705719 0.37705719 2578.14945 0Residual 2514 0.367675263 0.000146251Total 2515 0.744732453

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%Intercept -6.05501E-05 0.000241123 -0.251117082 0.80174411 -0.00053337 0.00041227 -0.00053337 0.00041227S&P 500 geo 0.932491086 0.018364988 50.77548081 0 0.896479035 0.968503138 0.896479035 0.968503138

Appendix

Discount Rate

= 8.68%

RMSFT= .017+.93(.092-.017)

Discount Rate

Market return 9.20%

Beta 0.93

Risk premium 6.98%

Risk free rate 1.70%

Cost of Equity 8.68%

0 0.1 0.2 0.3 0.4 0.5

0.600000000000001

0.700000000000001 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.80.00%2.00%4.00%6.00%8.00%

10.00%12.00%14.00%16.00%

CAPM

Beta

Appendix

Income Statement

Forecasted Income Statement

(In $M, besides per share) 2010 2011 2012 2013F 2014F 2015F 2016F 2017F

Sales (Net) 62,484 69,943 73,723 77,654 83,607 88,828 94,324 99,592

Cost of Goods Sold 9,888 13,040 14,772 15,902 17,280 18,269 19,469 20,465

Gross Profit 52,596 56,903 58,951 61,752 66,328 70,559 74,855 79,126

Selling, General, & Admin Expenses 25,932 27,205 28,237 30,350 32,979 34,867 37,157 39,059

Operating Income Before Depreciation 26,664 29,698 30,714 31,402 33,349 35,692 37,697 40,067

Depreciation, Depletion, & Amortization 2,507 2,537 2,758 2,230 2,423 2,562 2,730 2,870

Operating Income After Depreciation 24,157 27,161 27,956 29,172 30,925 33,130 34,967 37,197

Interest Expense 151 295 380 380 380 380 380 380

Non-Operating Income/Expense 1,066 1,205 884 1,204 1,296 1,377 1,462 1,544

Special Items (59) - (6,193) (660) (711) (755) (802) (847)

Pretax Income 25,013 28,071 22,267 29,335 31,130 33,371 35,247 37,514

Income Taxes - Total 6,253 4,921 5,289 7,041 7,471 8,009 8,459 9,003

Net Income (Loss) 18,760 23,150 16,978 22,295 23,659 25,362 26,788 28,511

Common Shares Outstanding (In Millions) 8,813 8,490 8,396 8,416 8,416 8,416 8,416 8,416

Earnings per Share 2.13 2.73 2.02 2.65 2.81 3.01 3.18 3.39

Dividends 4,578 5,180 6,385 7,803 8,281 8,877 9,376 9,979

Dividend per share 0.52 0.64 0.80 0.92 0.98 1.05 1.11 1.19

Appendix

Balance Sheet

Appendix

Forecasted Balance SheetFiscal Year: 2010 2011 2012 2013F 2014F 2015F 2016F 2017FASSETS (In Million USD)Cash 5,505 9,610 6,938 8,797 8,977 9,029 9,054 9,006 Short Term Investments 31,283 43,162 56,102 46,881 50,848 54,483 58,351 62,164 Receivables - Total (Net) 13,014 14,987 15,780 17,333 18,707 19,948 21,264 22,549 Inventories - Total 740 1,372 1,137 1,148 1,138 1,108 1,069 1,018 Current Assets - Other 5,134 5,787 5,127 5,937 6,240 6,478 6,721 6,934 Current Assets - Total 55,676 74,918 85,084 80,095 85,911 91,045 96,459 101,672 Plant, Property & Equip (Gross) 16,259 17,991 19,231 24,980 28,215 31,402 34,854 38,403 Accumulated Depreciation 8,629 9,829 10,962 13,223 14,882 16,509 18,270 20,076 Plant, Property & Equip (Net) 7,630 8,162 8,269 11,757 13,333 14,893 16,584 18,327 Investments and Advances - Other 7,754 10,865 9,776 9,813 9,055 8,042 6,880 5,528 Intangibles 13,552 13,325 16,622 20,044 21,831 23,487 25,549 27,319 Assets - Other 1,501 1,434 1,520 1,641 1,960 2,289 2,353 2,715 TOTAL ASSETS 86,113 108,704 121,271 123,350 132,090 139,756 147,825 155,560 LIABILITIES (In Million USD) Accounts Payable 4,025 4,197 4,175 5,198 5,554 5,864 6,188 6,498 Accrued Expenses 3,283 3,575 3,875 3,977 4,399 4,802 5,235 5,673 Taxes Payable 1,074 580 789 351 376 398 421 443 Debt (Long-Term) Due In One Year - - 1,231 1,233 1,321 1,398 1,478 1,556 Other Current Liabilities 17,765 20,422 22,618 22,817 23,063 25,250 27,398 28,640 Total Current Liabilities 26,147 28,774 32,688 33,577 34,713 37,711 40,720 42,810 Long Term Debt 4,939 11,921 10,713 7,401 7,925 5,590 2,956 - Deferred Taxes (Balance Sheet) 229 1,456 1,893 1,925 2,062 2,182 2,307 2,428 Liabilities - Other 8,623 9,470 9,614 9,439 9,824 10,094 10,359 10,567 TOTAL LIABILITIES 39,938 51,621 54,908 52,343 54,524 55,577 56,343 55,805 SHAREHOLDERS' EQUITY Common Stock 54 52 52 53 57 60 63 67 Capital Surplus 62,802 63,363 65,745 65,673 66,814 67,471 68,169 69,288 Retained Earnings (Net Other) (16,681) (6,332) 566 5,282 10,696 16,648 23,249 30,401 TOTAL SHAREHOLDERS EQUITY 46,175 57,083 66,363 71,007 77,566 84,179 91,482 99,755 TOTAL LIABILITIES AND EQUITY 86,113 108,704 121,271 123,350 132,090 139,756 147,825 155,560

Statement of Cash Flows

Forecasted Statement of Cash Flows

(In Million USD) 2010 2011 2012 2013F 2014F 2015F 2016F 2017F

Net Income 18,760 23,150 16,978 22,295 23,659 25,362 26,788 28,511

Depreciation & Amortization 2,673 2,766 2,967 2,230 2,423 2,562 2,730 2,870

Other Non-Cash Adjustments 2,602 3,145 9,024 3,106 3,344 3,553 3,773 3,984

Changes in Non-Cash Capital 38 (2,067) 2,657 (1,487) (620) 1,474 1,408 565

Cash From Operations 24,073 26,994 31,626 26,145 28,807 32,951 34,699 35,930

Disposal of Fixed Assets - - - - - - - -

Capital Expenditures (1,977) (2,355) (2,305) (3,500) (3,226) (3,432) (3,648) (3,856)

Increase in Investments (30,168) (35,993) (57,250) (31,320) (26,647) (21,974) (17,301) (12,628)

Decrease in Investments - - -

Other Investing Activities 20,831 23,732 34,769 31,494 17,735 13,515 8,314 3,700

Cash From Investing Activities (11,314) (14,616) (24,786) (3,326) (12,139) (11,891) (12,635) (12,784)

Dividends Paid (4,578) (5,180) (6,385) (7,803) (8,281) (8,877) (9,376) (9,979)

Change in Short-Term Borrowings (991) (1,000) - 2 87 77 81

Change in Long-Term Borrowings 1,181 6,960 - (3,312) 524 (2,335) (2,634) (2,956)

Change in Capital Stocks (8,913) (9,116) (3,023) (9,847) (8,819) (9,872) (10,110) (10,258)

Other Financing Activities (29) 63 (104) - - - - -

Cash from Financing Activities (13,330) (8,273) (9,512) (20,960) (16,488) (21,008) (22,039) (23,194)

Net Changes in Cash (571) 4,105 (2,672) 1,859 180 52 25 (48)

Appendix

Key Financial RatiosKey Financial Ratios

2010 2011 2012 2013 F 2014 F 2015 F 2016 F 2017 F

Liquidity RatioCurrent Ratio 2.13 2.60 2.60 2.39 2.47 2.41 2.37 2.37Quick Ratio 2.10 2.56 2.57 2.35 2.44 2.38 2.34 2.35Cash Ratio 1.41 1.83 1.93 1.66 1.72 1.68 1.66 1.66

Efficiency RatioTotal Asset Turnover (x) 0.73 0.64 0.61 0.63 0.63 0.64 0.64 0.64Fixed Asset Turnover (x) 2.05 2.07 2.04 1.80 1.81 1.82 1.84 1.85Acc. Receivable Turnover (x) 4.80 4.67 4.67 4.48 4.47 4.45 4.44 4.42Days Sales Outstanding (days) 76.02 78.21 78.13 81.47 81.67 81.97 82.28 82.64Inventory Turnover (x) 84.44 50.98 64.84 67.64 73.46 80.20 88.20 97.84Days Inventory Outstanding (days) 27.32 38.40 28.09 26.35 24.04 22.13 20.05 18.15Payables Turnover (x) 15.52 16.66 17.66 14.94 15.05 15.15 15.24 15.33Days Payables Outstanding (days) 148.58 117.48 103.16 119.32 117.33 117.15 116.02 115.89Operating Cycle (days) 103.34 116.61 106.22 107.82 105.71 104.10 102.33 100.79Cash Cycle (days) -45.24 -0.86 3.06 -11.50 -11.62 -13.05 -13.69 -15.09

Profitability RatioGross Profit Margin 84.2% 81.4% 80.0% 79.5% 79.3% 79.4% 79.4% 79.5%EBITDA Margin 42.7% 42.5% 41.7% 40.4% 39.9% 40.2% 40.0% 40.2%EBIT Margin 38.7% 38.8% 37.9% 37.6% 37.0% 37.3% 37.1% 37.3%Net Profit Margin 30.0% 33.1% 23.0% 28.7% 28.3% 28.6% 28.4% 28.6%ROA 21.8% 21.3% 14.0% 18.1% 17.9% 18.1% 18.1% 18.3%ROE 40.6% 40.6% 25.6% 31.4% 30.5% 30.1% 29.3% 28.6%SG&A/Sale 41.5% 38.9% 38.3% 39.1% 39.4% 39.3% 39.4% 39.2%

Solvency RatioDebt Ratio 5.7% 11.0% 8.8% 6.0% 6.0% 4.0% 2.0% 0.0%Debt to Equity Ratio 86.5% 90.4% 82.7% 73.7% 70.3% 66.0% 61.6% 55.9%Equity Multiple (x) 1.86 1.90 1.83 1.74 1.70 1.66 1.62 1.56Long Term Debt Ratio (%) 5.7% 11.0% 8.8% 6.0% 6.0% 4.0% 2.0% 0.0%Interest Coverage Ratio (x) 159.98 92.07 73.57 76.77 81.38 87.18 92.02 97.89

Appendix

Ownership Summary

Ownership Summary

Institutions

Individuals/Insiders

VC/PE Firms

Public

Ownership Summary

Type Common Stock Equivalent Held

% of Total Shares Outstanding

Market Value (USD)

Institutions 5,669,508,757 67.69 155,883.10

Individuals/ Insiders 337,091,899 4.02 9,268.30

VC/PE Firms 436,911,775 5.22 12,012.90

Public 1,932,732,569 23.07 53,140.50

Total 8,376,245,000 100.00 230,304.90

Appendix

Sensitivity Analysis


Cost of Equity

-1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00%

7.0% $ 41.75 $ 42.62 $ 43.62 $ 44.76 $ 46.10 $ 47.69 $ 49.59

7.5% $ 40.50 $ 41.26 $ 42.12 $ 43.10 $ 44.23 $ 45.55 $ 47.11

8.0% $ 39.38 $ 40.04 $ 40.78 $ 41.63 $ 42.59 $ 43.70 $ 45.00

8.5% $ 38.35 $ 38.93 $ 39.58 $ 40.32 $ 41.15 $ 42.10 $ 43.19

9.0% $ 37.41 $ 37.92 $ 38.50 $ 39.14 $ 39.86 $ 40.68 $ 41.61

9.5% $ 36.54 $ 37.00 $ 37.51 $ 38.07 $ 38.70 $ 39.41 $ 40.22

10.0% $ 35.74 $ 36.15 $ 36.60 $ 37.10 $ 37.66 $ 38.28 $ 38.98

Appendix

30 32 34 36 38 40 42 44 46 48 50 520%

2%

4%

6%

8%

10%

12%

14%

16%

Monte Carlo Simulation

Input Variables

Variable Mean Std. Dev.

Revenue Growth 6.0% 1.0%

Perpetuity Growth 0.5% 0.5%

Cost of Equity 8.675% 1.0%

Forward PE Ratio 12 1.0%

Target Price Distribution

Appendix

Division/ Quarter WWLD STB MBD EDD OSD MSFT

Q1 0.998 0.970 0.992 0.797 1.002 0.967Q2 0.982 1.071 1.053 0.746 1.050 1.001Q3 0.998 0.955 0.954 0.835 0.919 0.936Q4 1.022 1.008 1.005 1.636 1.036 1.102

Seasonal Factors

Q1 Q2 Q3 Q40.85

0.9

0.95

1

1.05

1.1

1.15MSFTComputed with data

from Q1-2002 FY to Q1-2013 FY

Appendix

Correlation with US GDP

WWLD STB MBD EDD OSD MSFT0%

20%

40%

60%

80%

100%

Correlation of quarterly revenue seasonally adjusted of each division and total with quarterly US GDP seasonally adjusted

Division WWLD STB MBD EDD OSD MSFT

r(US,R) 88.6% 96.1% 97.0% 90.7% 55.1% 96.4%

Appendix

Correlation with European countries GDP

Correlation of quarterly revenue seasonally adjusted of each division and total with quarterly US GDP seasonally adjusted

Division/ Country WWLD STB MBD EDD OSD MSFT

US 88.6% 96.1% 97.0% 90.7% 55.1% 96.4%

France 83.2% 85.8% 90.2% 87.7% 60.6% 90.3%Italy 24.0% 10.8% 23.2% 32.0% 41.6% 24.9%

Germany 78.0% 77.5% 83.1% 80.2% 60.2% 83.3%UK 84.6% 89.6% 93.0% 90.8% 65.0% 92.9%

Appendix

Global Correlation

Correlation of total revenue annual growth rates and annual GDP growth rates from different regions

Region r (GPD,R)

East Asia & Pacific 40.2%

European Union 59.2%Latin America & Caribbean 29.7%

OECD Countries 60.5%Middle East and North Africa 44.2%

South Asia 49.1%North America 59.1%

World GDP 58.4%

OECD (Organization for Economic Co-Operation and Development)Biggest economies: US, Japan, Germany, France & UK

European UnionBiggest economies: Germany, France, UK, & Italy

Appendix

Fiscal YearPercentage of Total Revenues

US Other countries

2000 68.3% 31.7%

2001 70.4% 29.6%

2002 70.7% 29.3%

2003 68.6% 31.4%

2004 68.0% 32.0%

2005 63.9% 36.1%

2006 63.1% 36.9%

2007 61.3% 38.7%

2008 59.5% 40.5%

2009 56.6% 43.4%

2010 57.9% 42.1%

2011 54.3% 45.7%

2012 52.7% 47.3%

Geographic Segments

20002001

20022003

20042005

20062007

20082009

20102011

20120%

20%

40%

60%

80%

100%

US Other countries

Appendix

• Tried different forecasting methods and selected method with lowest Mean Absolute Deviations & Mean Square Error:

• Forecasted seasonally adjusted quarterly revenue from Q2-2013 FY to Q4-2017 FY for each division and adjusted for seasonality

• Added forecasted revenues to obtain annual revenues and annual growth rates

Forecast - Regression

WWLD STB MBD EDD OSD

Ind. Variable -Upward trend- MBD rev.

-Upward trend- US GDP

-Upward trend- US GDP -US GDP -US GDP

Dep. Variable WWLD revenues STB revenues MBD revenues EDD revenues OEC revenues

Appendix Next Forecast

Forecast - Equations

1.82US106.75U0.09STB GDP5

T

• WWLD – R2 = 85.5

• STB – R2 = 98.5

• MBD – R2 = 95.8

• EDD – R2 = 82.2

• OSD – R2 = 30.3

1.36US105.59MBD0.737WWLD GDP5

1.32US103.13U0.05MBD GDP4

T

3.37US103.66EDD GDP4

157.27US103.48OSD GDP4


Forecast - Results

Fiscal Year WWLD STB MBD EDD OSD2013 $20,382 $19,239 $25,713 $10,680 $3,0242014 $21,880 $20,400 $27,638 $12,096 $3,0612015 $22,949 $21,646 $29,274 $12,987 $3,1472016 $24,094 $22,863 $31,046 $14,036 $3,2462017 $25,455 $23,894 $32,680 $15,262 $3,363

Fiscal YearGrowth rates (%)

Method 1 Method 2 Method 32013 6.25% 6.99% 5.37%

2014 9.04% 7.64% 9.70%

2015 5.79% 5.79% 5.78%

2016 5.92% 5.87% 5.86%

2017 12.37% 5.63% 6.12%

Total Revenues VerificationMethod 1: Multiple regression with UT and US GDPMethod 2: Summation of each division’s revenueMethod 3: Multiple regression with WWLD, STB, MBD, EDD & OSD


Forecast - Graphs


Forecast – Justification US GDP

• US is the biggest economy in the world. The second biggest economy is half of US economy

• US continues to be the most important market for Microsoft• Correlation of each segment’s revenues and total revenues is

mostly higher with US GDP• Difference in MDA and MSE are small if European countries

are used• Correlation results yielded a high R2 with US GDP

Appendix

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20170

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

US European Union Emerging Markets World GDP

GD

P (b

n)Economic Outlook

Source: International Monetary Fund

Appendix

Windows Timeline

Appendix

Microsoft Office Timeline

Appendix

Server & Tools Timeline

Appendix

Piracy Rates - BRIC

Country Legal Sales (M) Pirated Value (M)US $41,664 $9,773China $2,659 $8,902Russia $1,895 $3,227India $1,721 $2,930Brazil $2,526 $2,848

US China Russia India Brazil0%

10%20%30%40%50%60%70%80%90%

100%

81%

23%

37% 37%47%

19% 77% 63% 63% 53%

Pirated ValueLegal Value

Appendix

Cash Balance

2005 2006 2007 2008 2009 2010 2011 2012 0

10000

20000

30000

40000

50000

60000

70000

Cash and Short Term Investments

$68 Billion as of 12/31/2012

Appendix

Top Holdings

Cascad

e Inve

stmen

t, L.L.C

.

BlackR

ock, In

c.

The V

angu

ard Gro

up, Inc.

Ballmer,

Stev

en A.

State

Stree

t Global

Advisors,

Inc.

- 1.00 2.00 3.00 4.00 5.00 6.00

Top Holdings

% o

f Tot

al S

hare

s Out

stan

ding

Holder Common Stock Equivalent Held

% of Total Shares Outstanding

Market Value ($ mm)

Cascade Investment, L.L.C.431,411,775

5.15 11,861.70

BlackRock, Inc.430,316,195

5.14 11,831.50

The Vanguard Group, Inc.343,251,826

4.10 9,437.70

Ballmer, Steven A.333,252,990

3.98 9,162.80

State Street Global Advisors, Inc.318,167,120

3.80 8,748.00

Appendix

Hedging

Hedging Major Securities

Currency Euro

Japanese Yen

British Pound

Canadian $

Interest Rate Investment Grade notesMortgage backed Securities

Equity

Commodity Metals EnergyGrain

Manage global portfolio of securities to relative global and domestic indicies. The

return on these is correlated to these indicies.broad commodity exposure

Manage these commodities to global commodity indicies and their return is

correlated to these indicies.

Diversified across credit sectors and maturities to limit risk. Consist primarily of investment-grade securities. Use Forward

purchase commitments of mortgage backed assets to gain exposure to agency

and mortgage backed securities.

Monitor foreign currency exposures daily and use hedges where practicable to

offset the risks and maximize economic effectiveness.

Appendix

Forecasted EPS and DPS

2010 2011 2012 2013F 2014F 2015F 2016F 2017F $-

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

EPS and DPS

Earnings Per ShareDividend Per Share

2010 2011 2012 2013F 2014F 2015F 2016F 2017F

Earnings Per Share $ 2.13 $ 2.73 $ 2.02 $ 2.65 $ 2.81 $ 3.01 $ 3.18 $ 3.39

Dividend Per Share $ 0.52 $ 0.64 $ 0.80 $ 0.93 $ 0.98 $ 1.05 $ 1.11 $ 1.19

Appendix

Altman Z Score 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Microsoft 14.54 11.39 10.66 9.23 7.09 6.61 6.29 4.59 5.42 4.43 4.47

Apple 4.12 3.44 4.3 7.31 7.24 7.62 9.22 6.96 7.26 7.58 7.96

Oracle 12.9 9.89 10.97 5.39 4.47 4.56 4.19 4.29 3.84 4.52 4.51

IBM 2.83 2.89 2.91 3.06 3.09 3.0 3.37 3.63 3.8 4.18 4.41

Google 4.69 3.78 67.41 57.42 54.27 40.56 27.46 21.31 11.25 10.15 7.84

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0

5.0

10.0

15.0

20.0

25.0

Altman Z-Score

Microsoft

Competitors Average

Distress Level

Appendix

Revenue by Division

Appendix

2007 2008 2009 2010 2011 2012 2013F 2014F 2015F 2016F 2017F0

20,000

40,000

60,000

80,000

100,000

120,000

Entertainment and DevicesMicrosoft BusinessOnline ServicesServer and ToolsWindows & Windows Live

Revenues 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F 2016F 2017F

Windows & Windows Live 14,779 16,815 15,563 18,789 18,787 18,818 19,107 20,445 21,672 22,972 24,259

Server and Tools 11,117 13,217 14,686 15,121 16,691 18,696 19,633 21,016 22,405 23,664 24,731

Online Services 2,434 2,164 2,110 2,345 2,680 2,934 3,165 3,491 3,704 3,945 4,229

Microsoft Business 16,478 18,904 19,211 19,525 22,314 23,963 25,747 27,676 29,314 31,087 32,723

Entertainment and Devices 6,136 8,502 6,416 6,135 8,896 9,585 9,788 10,767 11,520 12,442 13,437

Total Revenues 51,122 60,420 58,437 62,484 69,943 73,723 77,440 83,394 88,615 94,110 99,379

Net Working Capital

2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F 2016F 2017F

Current Assets

48,737

49,010

40,168

43,242

49,280

55,676

74,918

85,084

80,095

85,911

91,045

96,459

101,672

Current Liabilities

16,877

22,442

23,754

29,886

27,034

26,147

28,774

32,688

33,577

34,713

37,711

40,720

42,810

Net Working Capital

31,860

26,568

16,414

13,356

22,246

29,529

46,144

52,396

46,518

51,198

53,334

55,739

58,862

2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F 2016F 2017F -

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Net Working Capital

Net Working Capital

Appendix

Risk Categories

Risk Categories 2012 2011 Average High Low

Foreign currency $ 98 $ 86 $ 173 $ 229 $ 84

Interest rate $ 71 $ 58 $ 64 $ 73 $ 57

Equity $ 205 $ 212 $ 194 $ 248 $ 165

Commodity $ 18 $ 28 $ 20 $ 29 $ 15

Year Ended June 30, 2012 2011 2010

Federal statutory rate 35.00% 35.00% 35.00%Effect of:

Foreign earnings taxed at lower rates -21.10% -15.60% -12.10%Goodwill impairment 9.70% 0% 0%I.R.S. settlement 0% -1.70% 0%Other reconciling items, net 0.20% -0.20% 2.10%Effective rate 23.80% 17.50% 25.00%

Appendix

Return on Equity

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Return on Equity

msftcompetitors' average

Return on Equity 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012msft 10.8% 12.9% 11.7% 19.9% 28.6% 39.5% 52.5% 38.4% 43.8% 44.8% 27.5%

aapl 1.6% 1.6% 5.7% 21.2% 22.8% 28.5% 33.2% 30.5% 35.3% 41.7% 42.8%

orcl 35.9% 37.1% 37.5% 30.6% 25.9% 26.3% 27.2% 22.9% 21.7% 23.9% 23.7%

ibm 23.1% 26.0% 25.2% 24.7% 30.6% 36.6% 58.7% 73.9% 64.6% 73.1% 73.8%

goog 26.7% 22.6% 23.7% 23.3% 21.2% 16.6% 20.3% 20.7% 18.7% 17.2%

competitors' average 20.2% 22.9% 22.7% 25.1% 25.7% 28.1% 33.9% 36.9% 35.6% 39.3% 39.4%

Appendix

Debt Structure Breakdown

Due Date Face Value

Stated

Effective

Interest

Interest

Interest

Interest

Interest Interest Record Date Pay DateRecord

Date Pay Date

Rate Rate

Notes September 27, 2013

$ 1,000 0.88% 1.00% March 15 March 27September

15 September 27June 1, 2014 2,000 2.95% 3.05% 15-May 1-Jun 15-Nov 1-DecSeptember 25, 2015 1,750 1.63% 1.80% 15-Mar 25-Mar 15-Sep 25-SepFebruary 8, 2016 750 2.50% 2.64% February 1 February 8 1-Aug 8-AugJune 1, 2019 1,000 4.20% 4.38% 15-May 1-Jun 15-Nov 1-DecOctober 1, 2020 1,000 3.00% 3.14% 15-Mar 1-Apr 15-Sep 1-OctFebruary 8, 2021 500 4.00% 4.08% 1-Feb 8-Feb 1-Aug 8-AugJune 1, 2039 750 5.20% 5.24% 15-May 1-Jun 15-Nov 1-DecOctober 1, 2040 1,000 4.50% 4.57% 15-Mar 1-Apr 15-Sep 1-OctFebruary 8, 2041 1,000 5.30% 5.36% 1-Feb 8-Feb 1-Aug 8-AugTotal 10,750

Convertible DebtJune 15, 2013 1,250 0.00% 1.85%Total face value $ 12,000

Appendix

Capital Structure Breakdown

12 months Jun-30-2011 12 months Jun-30-2012 3 months Dec-31-2012

Total Debt 13,138 12,775 14,218 18.70% 16.10% 16.40%Total Common Equity 57,083 66,363 72,576 81.30% 83.90% 83.60%

Total Capital 70,221 79,138 86,794

16.40%

83.60%

Capital Structure

Total Debt

Total Common Equity

Appendix

Price to Earnings

Jan-31-2012

Feb-16-2012

Mar-03-2012

Mar-19-2012

Apr-04-2012

Apr-20-2012

May-06-2012

May-22-2012

Jun-07-2012

Jun-23-2012

Jul-09-2012

Jul-25-2012

Aug-10-2012

Aug-26-2012

Sep-11-2012

Sep-27-2012

Oct-13-2012

Oct-29-2012

Nov-14-2012

Nov-30-2012

Dec-16-2012

Jan-01-2013

0.00x

2.00x

4.00x

6.00x

8.00x

10.00x

12.00x

14.00x

16.00x

18.00x

20.00x

MSFT

Competitors Average

2012 Price to Earnings

Average Min Max

MSFT 13.01x 10.35x 15.39x

AAPL 14.39x 12.05x 16.64x

INTC 10.50x 8.92x 11.78x

GOOG 0.00x 0.00x 0.00x

ORCL 15.47x 14.21x 16.27x

QCOM 21.17x 19.42x 23.72x

Appendix

Revenue Growth ForecastsForecast based on Regression Analysis

Microsoft Business Server & Tools Windows & Windows Live Entertainment & Devices Online Services2013 6.32% 3.07% 8.64% 14.47% 2.35%2014 6.49% 6.04% 7.35% 10.30% 1.31%2015 5.52% 6.11% 4.89% 7.34% 2.13%2016 6.05% 5.62% 4.99% 8.05% 3.54%2017 5.26% 4.51% 5.65% 8.72% 3.19%

Adjustments Based on Qualitative Analysis

Microsoft Business Server & Tools Windows & Windows Live Entertainment & Devices Online Services2013 1.00% 2.00% -4.50% -12.50% 8.00%2014 1.00% 1.00% -0.50% -1.00% 9.00%2015 0.50% 0.50% 1.00% -0.50% 4.00%2016 0.00% 0.00% 1.00% 1.00% 3.00%2017 0.00% 0.00% 0.00% 1.00% 4.00%

Final Growth Rate Projections

Microsoft Business Server & Tools Windows & Windows Live Entertainment & Devices Online Services2013 7.32% 5.07% 4.14% 1.97% 10.35%2014 7.49% 7.04% 6.85% 9.30% 10.31%2015 5.92% 6.61% 5.89% 6.84% 6.13%2016 6.05% 5.62% 5.99% 9.05% 6.54%2017 5.26% 4.51% 5.65% 9.72% 7.19%

Appendix

Projections by Segment

Final Revenue Projections

Microsoft Business Server & Tools Windows & Windows Live Entertainment & Devices Online Services2013 25,747 19,633 19,108 9,788 3,1652014 27,676 21,016 20,445 10,767 3,4912015 29,314 22,405 21,672 11,520 3,7042016 31,087 23,664 22,973 12,442 3,9452017 32,723 24,731 24,259 13,437 4,229

Operating Margins ProjectionsMicrosoft Business Server & Tools Windows & Windows Live Entertainment & Devices Online Services

2013 64.5% 40.4% 62.3% 3.77% -63.2%2014 62.5% 40.4% 59.8% 3.84% -50.1%2015 62.3% 39.9% 58.8% 3.92% -37.8%2016 62.0% 38.8% 57.8% 4.05% -25.4%2017 61.5% 37.4% 56.8% 4.08% -9.46%

Operating Income Projections

Microsoft Business Server & Tools Windows & Windows Live Entertainment & Devices Online Services2013 16,607 7,935 11,907 369 (2,000)2014 17,297 8,494 12,229 414 (1,750)2015 18,263 8,943 12,746 451 (1,400)2016 19,274 9,186 13,001 497 (1,000)2017 20,124 9,254 13,782 548 (400)

Appendix

Valuation Total Business

2012A 2013E 2014E 2015E 2016E 2017ETotal Revenue 73,723.00 77,654.35 83,607.34 88,828.21 94,323.57 99,591.85 Operating Income from divisions 21,763.00 29,171.85 30,925.24 33,129.69 34,966.94 37,197.16 Margin 29.52% 37.57% 36.99% 37.30% 37.07% 37.35% Interest Expense 380.00 380.00 380.00 380.00 380.00 380.00 Non-Operating Income/Expense 1203.64 1203.64 1295.91 1376.84 1462.02 1543.67 Special Items -660.06 -660.06 -710.66 -755.04 -801.75 -846.53Income before income taxes 22,143.00 29,335.43 31,130.49 33,371.48 35,247.21 37,514.30 Taxes (24%) 5,289.00 7,040.50 7,471.32 8,009.16 8,459.33 9,003.43 Net Income 16,854.00 22,294.93 23,659.17 25,362.33 26,787.88 28,510.87 Depreciation & Amortization 2,967.00 2,230.19 2,423.38 2,562.13 2,730.40 2,870.16 Other Non-Cash Adjustments 9,024.00 3,106.17 3,344.29 3,553.13 3,772.94 3,983.67

Change in non -cash Working Capital 2,657.00 (1,486.79) (619.98) 1,473.54 1,408.23 564.94 Less Capital Expenditures (2,305.00) (3,500.00) (3,226.15) (3,431.76) (3,648.17) (3,855.64)Free cash flow 29,197.00 22,644.51 25,580.71 29,519.38 31,051.29 32,074.00 Calculation of Implied Value per sharePV of 2013-2017 105,314.73 $ 12.51 $ 12.51 PV of Terminal Value 248,031.60 $ 29.46 $ 29.46 Less: Minority Interest - Less: Debt (53,040.00) $ (6.30) $ 1.62 Add: Cash 66,644.00 $ 7.91 $ 43.58 Total Equity Value 366,950.33 Shares O/S 8,420.00 Implied Value (Price Target) $ 43.51 Current Stock Price 27.37 PER Model $ 31.85 PER Weight 30% Final Price Target $ 40.02 Upside Potential 46%

Appendix

Main Competitors

Competition

WWL STB OSD MBD EDD

Apple HP Google Adobe Nintendo

Google IBM Apple Sony

Oracle Cisco Apple

Vmware Google Google

Amazon IBM BlackBerry

Salesforce.com

Appendix

Shift to Mobile

Appendix

Recent Events & Acquisitions

February 8, 2013 – Surface Pro LaunchFebruary 5, 2013 – Microsoft lends Dell $2 BillionJanuary 29, 2013 – Launch of Office 2013 and Office 365January 2, 2013 – R2 AcquisitionOctober 26, 2012 – Windows 8 and Surface Rt LaunchOctober 16, 2012 - StorSimple Inc. AcquisitionOctober 4, 2012 - PhoneFactor Inc. AcquisitionSeptember 18, 2012 – Dividend increase to $0.23September 4, 2012 – Windows Server 2012July 9, 2012 - Perceptive Pixel Inc. AcquisitionJune 25, 2012 - Yammer Inc. Acquisition for $1.2 billion in cashJune 28, 2011 – Launch of Office 365November 22, 2011 - VideoSurf Inc. AcquisitionJune 7, 2011 – Prodiance AcquisitionMay 10, 2011 – Skype Acquisition for $8.5 billion in cash

Appendix

Cloud Costs

Appendix

Public Cloud Concerns

Appendix

Market Share

Microsoft Market Share

Cloud 27%Server 75%Office 90%Windows 92%Xbox 47%Windows Phone 3%Bing 16%

Appendix

Cloud Gross Margins

Gross Margin 2011 2012

Microsoft 78% 76%

Vmware 83% 84%

Salesforce.com 78% 78%

Appendix

Risk Matrix

Appendix

Windows Phone Market Share

Appendix

France Italy Spain UK US Australia0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

Windows Phone Market Share

2011

2012

2011 2012France 3.70% 4.10%Italy 2.80% 13.90%Spain 0.40% 1.80%UK 2.20% 5.90%US 2.20% 2.60%Australia 1.90% 2.80%

PC Penetration

Appendix

North America

UK

France

Germany

Brazil

Russia

China

India

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

PC Penetration

Country PC PenetrationIndia 4.1%China 7.7%Russia 16.6%Brazil 26.0%Germany 77.9%France 82.7%UK 90.6%North America 88.8%

Tablets Shipments & Emerging Markets

Appendix

• CIOs at the cloud forum: “Microsoft is most secure”

• Windows 8 uses Secure Boot• Incorporate Windows

Defender standard • DoD, State of Texas deal for

Windows 8 and Office 365

Security - Windows

Appendix

• Office 365– $99.99/year, or $9.99 per month– All applications– Skype, SkyDrive– Up to 5 PCs or Macs

• Home $ Student– $139.99– Word, Excel, PowerPoint, OneNote– 1 PC only

• Professional– $399.99– All applications– 1 PC only

Pricing - Office

Appendix

Cloud Services

Appendix

• Targets by age and gender• Easier import of advertising campaign• Higher character count• Better support than Google• Less expensive to bid for a spot

– Example: minimum 1 cent with Bing, 5 cents with GoogleKeyword Bing CPC Google

CPCBing

Savings

mens boardshorts $0.48 $1.35 64%labor laws $0.96 $3.30 71%medicare supplement insurance plans

$5.99 $11.58 49%

Online Service Division

Appendix

• MSFT has about 25% market share• Gartner estimates of the IaaS and PaaS cloud markets in 2014 to be $13billion.

– Assuming MSFT keeps a conservative 25% market share, that’s $3.3 billion of cloud revenue

• 10,000 Azure customers as of 2011• STB fastest growing segment. 16% operating profit before tax 5-year CAGR• STB margins are better than competitors average server segment margins

OPBT margin 2007 2008 2009 2010 2011 2012salesforce.com -1% 3% 6% 9% 6% -2%Rackspace 8% 8% 9% 10% 12% 13%Vmware 18% 17% 11% 15% 20% 19%MSFT STB 32% 29% 32% 36% 38% 40%Oracle cloud segment 43% 46% 44% 47% 49% 48%

Cloud Revenue

Appendix

52 Wk. High/Low: 32.95/26.26

NasdaqGS:MSFT - Recommendation: Outperform (2.20)1 - Buy 152 - Outperform 63 - Hold 174 - Underperform 05 - Sell 20 - No Opinion 1

Revenue Company Level (USD)

FQ3 2013 FQ4 2013

Current 20754.31 21326.331 month ago 20793.92 21361.772 months ago 20884.63 216243 months ago 20995.14 21732.46 months ago 20070 20257.049 months ago 18941.02 20270.9712 months ago 18578.64 19906.4518 months ago 18793.22 19829.15

EBITDA Company Level (USD)

FQ3 2013 FQ4 2013

Current 9023.66 8899.591 month ago 9023.66 8899.592 months ago 8671.11 8950.423 months ago 8628.55 8949.166 months ago 8628.75 8527.699 months ago 8107.33 8646.0612 months ago 7799.12 8350.4618 months ago 7823.75 8263.45

We are projecting $2.65 EPS for 2013. Street is $2.84

NasdaqGS:MSFT (USD) Mean Median High/Low Std. Dev.

Target Price 32.91 33 38.00/28.00 2.91

Street Consensus

Appendix

– IHS estimates it costs $271 to build $499 Surface tablet.– Samsung provided display, memory chips, and battery,

Nvidia makes processor chip– Keyboard only costs $16, sells for $120– Costs $316 to make the $499 16GB iPadMade in China

Surface Production

Appendix

• 95% of Microsoft's revenues comes from its 640,000 partners (2010)

2010 2011 -

10,000 20,000 30,000 40,000 50,000

Cloud Partners

2007 2009 $440,000,000,000 $460,000,000,000 $480,000,000,000 $500,000,000,000 $520,000,000,000 $540,000,000,000 $560,000,000,000

Microsoft and Partners Revenue

Supply Chain - Customers

Appendix

• Current battle between MSFT and GOOG– Google claims MSFT used its technology on WP,

Surface, and Xbox– Motorola asking for $4 billion a year for its

wireless and video patents. Microsoft says Google deserves only $1 million a year.

– Judge: parts of those patents are "indefinite,“ - Motorola's patent language did not distinctly articulate the invention.

– MSFT claims Android devices infringe on some of its patents

– A ruling is expected sometime in the next several weeks.

• I/P Engine sued MSFT for $696M for using internet search technologies on Bing.– I/P received only $30m for the same

technologies when it sued Google and AOL.

Lawsuits

Appendix

• Physically destroying data hard drives• Data encrypted with Secure Sockets

Layer• Data in databases separated in

different containers and in different language

• Performs deep packet inspection and blocks and sends alerts when it sense suspicious traffic

• Data is replicated to 3 nodes to prevent data loss

• JPMorgan, City of Chicago, Toyota, Volvo, Pixar

Security - Cloud

Appendix

Documents

MSFT Presentation - Team B