Specialist
Former VP at Microsoft Corp
Agenda
- 2022 operating and financial performance of Microsoft’s (NASDAQ: MSFT) hardware portfolio
- Demand trends in PCs and video games consoles
- Mid-to-long-term outlook for PCs and video games consoles
Questions
1.
What 2-3 key trends or drivers do you believe investors should pay attention to as we look at Microsoft from a PC, gaming and general hardware angle, as well as the broader industry?
2.
We’re seeing news and research reports about AI and especially ChatGPT everywhere at the moment. Microsoft isn’t new to AI, however, and many of its peers have been developing this kind of technology for a long time. The company has invested in OpenAI over a few different funding rounds, including, I believe, while you were at the company. How do you see AI and ChatGPT being incorporated into some of its products? Do you see this being incorporated into Xbox and Xbox Live? How might something like that look?
3.
Where do you think the return on Microsoft’s massive investment in AI will come from? I understand it may be trying to take market share from Google, given the integration into its Edge browser and Bing search engine. Do you anticipate price increases for Office 365? Where does the real return come from?
4.
Where do you see the biggest threats to Microsoft on the PC and gaming side? I think we know the big names out there, and I feel the same names have been there for a long time and it’s been pretty steady. To what competitors or where is the company losing or gaining market share?
5.
On the enterprise side, I’m definitely seeing a lot more Apple, a lot more Macs. Lenovo is also big in the office space. I haven’t seen a ton of Microsoft Surface devices – perhaps they’re more consumer-focused. How do you see market share shifting, especially on the enterprise side, given the tough competition with Lenovo and Apple? Do you expect those companies to push to gain market share there?
6.
It’s been the same players for a long time on the video game console side – Microsoft, Sony and Nintendo. What’s the risk of another player coming in? Have you seen a push from any smaller companies trying to get bigger in the space? What barriers to entry would you pick out?
7.
One potential growth catalyst for the gaming industry, especially given, as you touched on, Xbox’s large install base, is AR and VR. We discussed this a little in our previous Forum Interview [Tech Hardware – Industry Overview, Growth vs Profitability & PC & Gaming Console Focus – 14 December 2022]. AR/VR is currently seen as very complementary to the gaming industry, and I think it always will be, but would you ever expect to see a more AR/VR-specific console coming out, especially given Microsoft’s investment in HoloLens?
8.
I have heard really good things about Microsoft’s HoloLens 2, which debuted in 2019. I imagine you’ve also been paying attention to Apple’s mooted MR [mixed reality] headset. Thinking out into a hypothetical future where AR/VR is more accepted and more commercialised, how big of a threat would you see Apple’s entry into the space as? How might the companies compete on the gaming side, given Microsoft’s large install base?
9.
Gartner and IDC seem to be cutting their forecasts for PC shipments, and we talked about Microsoft’s devices segment being down double digits. What are your thoughts on that? How do you see that trending in 2023? How long do you think it will take until things normalise there?
10.
You talked about the sunsetting of Windows 10. How we should be thinking about that as a driver of PC sales? How much does that mean for Microsoft as commercial adoption picks up for Windows 11? Historically, have you seen any correlation between a version of Windows being sunsetted and the shipments of PCs, whether positive or negative?
11.
Microsoft discussed issues around finding the right discounting for customers in its Q2 FY23 earnings, which is something you also touched on. Could you unpack what the company meant by this? Did it not lower prices enough? Do you see further price pressure in the future?
12.
Microsoft’s gaming revenue declined about 9% YoY in Q2 FY23. What do you think is behind that? Do you think consumer demand has weakened or is it just a tough YoY comparison?
13.
Many people looking at Microsoft’s gaming results are really focusing on recurring revenue and the as-a-service model. The company seems to be doing really well in terms of Game Pass subscriber numbers, and it reported 120 million MAUs [monthly active users] in January 2023. What are your thoughts on Game Pass and subscription revenue? How much of a growth driver might Game Pass be for its gaming segment? What might be driving its growth?
14.
Microsoft is pretty transparent – I think we tend to know a lot about what’s going on with the company and management. In your opinion, how solid is the management team? Given the performance over the past three years, which have been incredibly challenging and ever-changing, and given the uncertainties ahead, do you think the right management team is in place? How much of a risk would it be if CEO Satya Nadella considered leaving?
15.
Considering what we have discussed today, as we look at Microsoft from an overall view, what are your near- and long-term growth trend forecasts? What are you paying attention to that you believe would be useful for an investor audience to track to judge the overall health of the company?
