Founded in 1975 by Bill Gates and Paul Allen, Microsoft Corporation (MSFT) is a technology company that practically everyone has heard of, operating in over 190 countries worldwide. Their focus is developing, licensing, and supporting software products, services, and devices. In today’s technology-driven climate, companies of their disposition are rampant, and many competitors are common knowledge—such as Apple, IBM, and Google. Other less obvious ones are Red Hat for its open-sources Linux operating systems, as well as SAP and Oracle, which deal with the business services and infrastructures markets (“Who are Microsoft’s (MSFT) main competitors?”).
Analyzing the financial condition of Microsoft shows its immensity and success. The current ratio is 1.908, found by its current assets divided by current liabilities (Item 1). Being considerably higher than one, it can cover its short-term liabilities with more liquid assets. The immensity of MSFT’s liquid assets can be realized when comparing known competitor Apple’s current ratio, coming in at 1.109 (Item 2), found on Apple’s 10-K. Microsoft’s debt-to-equity ratio is 1.69 (Item 3), showing their leanings on debt versus equity. However, this can prove beneficial to the company because of debt’s tax benefits. Apple’s D/E ratio is 1.51 (Item 4), showing more favorability towards equity. The return on equity for Microsoft is 0.233 (Item 5), which is an attractive indication of desirable returns to shareholders. In comparison, Apple’s return on equity is higher 0.356 (Item 6). Well-established and financially sound, Microsoft makes for a great investment position, and its riskiness is relatively low and overall similar to fairly similar to the chosen competitor Apple.
Microsoft’s has the heavy risk of competition looming. This can affect every part of their corporation, leading to decreased profits as well as wasted development time and expenses. Another company beating Microsoft to a release of a similar product could be devastating, as could a competitor merely having a similar software, for example. Microsoft is in a very broad market, and their position isn’t as area focused, which sometimes leads to inability to create a superior product. For example, if a company has a specialized direction of creating Point of Sale (POS) systems for retail stores, more resources likely can be dedicated versus Microsoft’s POS division. Another facet of competitive risks is in the various business models of other companies. Many companies offer lower to no cost software which incur less research investment burdens to deliver a final product. Instead, funding is found in third-party advertisements or being open-source so that other companies may ultimately tailor the software to specific needs (“Microsoft Corporation, 10-K Annual Report” 18). However, Microsoft takes on research and development investments to make a licensed product that will inherently be of a higher development cost.
To address competitive risks, there are a variety of options. First, Microsoft should recognize their place in the market, revealing pursuable strengths and weaknesses therein to focus on (Summerfield 8-10). Second, it should have measures in place to mitigate the effects before a competitor can make a move, or in other words, being prepared for the future (Summerfield 12). It’s crucial to be agile by adapting to new business models, technologies, and techniques in the market to harness full potential (Summerfield 10-11). Despite their massive size, a matching attitude should not come with it; any competitive threat is a threat nonetheless and should be responded to appropriately (Summerfield 7-8). Neglecting a proper reaction to this—or any—risk can prove fatal. With Microsoft’s size, it is possible to reduce competition by acquiring up and coming firms or its key employees whose niches show positive outlooks within the scope of Microsoft’s desired direction—all within the consideration of trade commission compliances. By doing so, Microsoft can boost its specializations without taking on as much risk of entering an unfamiliar market. This strategy has been performed before, as seen with their acquisition of the employment-oriented social network LinkedIn (“Microsoft Corporation, 10-K Annual Report” 19).
Another major risk that Microsoft faces are cyber-attacks and security vulnerabilities, as overlooking it can lead to a crippled infrastructure. Not only may this risk affect the company and its investment performance, it can also affect the customers, which, in turn, would affect the company by lowering revenues due to decreasing consumer trust. The financial and reputational damages brought by the leaking of customer data is potentially irreparable (Kardash, et al. 2). For further example, a cyber-attack could lead to a costly ransom being placed on servers or distribution of sensitive information. Being a company based in and driven by technology, cyber associated risks are essential to consider when developing a risk management plan.
Cyber-attacks and security vulnerabilities cannot be taken lightly. A simple, no-cost risk management technique to easily prevent a cyber loss can be performed by employees at all levels. Frequently changing secure passwords and being very careful with what is accessed with workplace technology can stop a large amount of security breaches. Additionally, and at potentially high costs, firewall technology, malware detection, and protocols of handling breaches should be on the cutting edge, as this risk is constantly evolving. Having third-party data management, such as externally managed cloud services or infrastructure, is increasingly popular, and confidential information placed with these companies aren’t risk immune (Kardash, et al. 2). External data placement should be a last resort, and Microsoft should retain its key data as much as financially feasible. Unfortunately, with the high frequency of cyber-attacks, a loss is likely to occur at some point, and therefore adequate cyber liability insurance coverage needs to be present (Kardash, et al. 3).