A committee of American lawmakers today will question the bosses of four of America’s largest technology companies over the extraordinary power and influence that they wield over our lives (Simon Duke writes). Satya Nadella, the boss of Microsoft, won’t be on the video call.
His omission reflects how the tide has turned in the world of antitrust. Microsoft has shaken off its monopolist tag. Instead, Google and Facebook have become the whipping boys for competition watchdogs the world over.
Mr Nadella’s absence is striking. After the stasis of the Steve Ballmer years, Mr Nadella, 52, has reinvigorated Microsoft. With a market value of $1.5 trillion it vies with Apple for the mantle of America’s largest listed company. Although Microsoft does not exercise as much power as, say, Google and Apple in the supply of smartphones, the company is ubiquitous. From video games to cloud computing to workplace software, Microsoft permeates global IT systems.
The developer derives tangible benefits from the broad array of interests, which it demonstrated to good effect last week. True, its annual results were slightly weaker than forecast, sending its stock down a couple of percentage points. Yet many Mr Nadella’s peers would look enviously at the growth Microsoft delivered in the face of the pandemic.
Sales rose by 13 per cent to $38 billion in its fourth quarter, thanks to strong demand for its cloud computing services as corporate customers sent staff to work from home and consumers fired up their Xboxes. This offset a cut in spending by small businesses and a slide in advertising revenues at Linkedin and its Bing search engine. For the full year, Microsoft delivered $53 billion in operating income, up 23 per cent, as turnover increased by 14 per cent.
The diverse technology conglomerate was founded 45 years ago by Bill Gates and the late Paul Allen. It became the world’s largest company thanks to its dominant Windows operating system and Office software. Under Mr Ballmer, 64, Microsoft lost ground and, embarrassingly, missed the shift to mobile — a blunder that Mr Ballmer tried to rectify through the disastrous takeover of Nokia’s handset business.
Mr Nadella, a Microsoft veteran, landed the chief executive job six years ago with an ambition to boost cloud computing sales. His aim was to move away from Microsoft’s historic reliance on delivering packaged software towards selling subscription-based services.
Microsoft’s most profitable division is its productivity and business processes business, which includes Linkedin, the jobs socal network, Dynamics, the sales management software, and commercial subscriptions to the Office 365 product line. It delivered earnings of $18.7 billion in the year to the end of June on revenues of $46.4 billion.
The cloud computing unit reported annual sales of $48.4 billion, up from $39 billion the year before, sending its operating income to $18.3 billion. The personal computing wing, which includes Microsoft’s PC and Xbox businesses, was lifted by the mass move to working from home and a surge in gaming. Its revenues rose from $45.7 billion to $48.3 billion last year, with income up by more than a quarter to $15.9 billion.
Mr Nadella believes that the pandemic will accelerate the shift to digital in work and home life. “Organisations that build their own digital capability will recover faster and emerge from this crisis stronger,” he said last week. Yes, you would expect the Microsoft boss to say that, but it’s hard to see how the company will not benefit from these trends.
Microsoft is not without threats — Slack, the workplace messaging app, filed a complaint with the European Commission last week. However, the backlash against Big Tech, if it comes, will hit others harder.
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Mitie
Contractors of outsourced services do the dull and dirty jobs that their customers do not want to do themselves, including office cleaning, building maintenance and security guarding (Robert Lea writes).
Many of these activities carry on, coronavirus pandemic or not, and yesterday Mitie said —in a trading update covering the lockdown months of April, May and June — that “our business has proved to be more resilient than expected”. In the first quarter of its financial year, it said that it had brought in revenues of £458 million, 11 per cent down on the year.
Mitie said that its June performance had been better and, as if to prove the point that the road to normality has begun, it said that 40 per cent of its 7,000 furloughed employees — out of a total of 37,500 on the payroll — had returned to work for its customers.
Business at its bread-and-butter business services division, which accounts for 53 per cent of its revenues, declined by only 1 per cent during the period. However, its technical and engineering services unit, which relies much more heavily on discretionary spending and which historically has accounted for about a third of the group, suffered a fall in revenues of 24 per cent. Its group of specialist businesses, including waste and landscaping, which depend on how busy its customers are, declined by 10 per cent.
Full disclosure: Tempus has long been a non-fan of the outsourcing sector. It has structurally low margins because companies and, more recently a public sector with no money, have no interest in paying more than they need to. And those low margins are at the mercy of just one or two contract blowouts, such as the sort that sent Carillion under and put Interserve in intensive care.
The picture at Mitie is complicated. It has just gone through a £190 million rights issue for a £270 million acquisition of the buildings services division of Interserve. In addition, it is benefiting from an agreement to delay payment of its taxes to HM Revenue & Customs.
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