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Microsoft Vends MSN China to XiChuang, Focuses on Cloud

Zacks Equity Research

Shares of Microsoft Corporation MSFT have been scaling steadily higher over the last 12 months. The company’s stock provided a return of 32.4% as compared to the S&P 500’s 11.3% over the period. 

 

The upside can be primarily attributed to robust performance from the company’s Office 365 subscription model, Azure cloud services, and a revamped Windows 10 platform. 

 

With Satya Nadella at its helm, Microsoft has had a series of restructuring measures that helped the company to revive its growth trajectory. The company's strategy includes divestiture of the non-performing assets, which helps it to focus on its core operations, like it did with its Nokia’s feature phone divestiture to Foxconn.

 

Meanwhile, Microsoft recently announced the divestment of its MSN China web portal to XiChuang Technology, a company co-founded by Liu Zhenyu, who formerly held the position of General Manager in MSN China. However, the amount of the deal has not been disclosed. 

 

We note that the buyout will help XiChuang benefit from MSN China’s search advertising business. 

 

What Led to the Divestment?

 

China, being the most populous nation in the world, is an important market for Microsoft and all the major technology companies. However, the country’s strict regulatory practices are a matter of concern, particularly for the U.S. based companies. 

 

In this regard, we note that in 2014, Microsoft’s offices in Shanghai, Chengdu, Beijing and Guangzhou were raided by Chinese regulatory authorities on the grounds of anti-competitive concerns that stemmed from compatibility issues between Windows and Office products. 

 

In May 2016, Microsoft had announced plans to shut down its Chinese web portal owing to strict government regulations and stiff competition from the nation’s web portals such as Tencent and Sina.

 

What’s Next ?

 

Microsoft is shifting its focus from being an online content provider to offering services and software for its Windows 10 platform in China. Additionally, cloud services and computing represent lucrative segments for the company which will help it to fortify its position in China. 

 

MICROSOFT CORP Price

 

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Zacks Rank & Key Picks

At present, Microsoft carries a Zacks Rank #3 (Hold).

 

Better-ranked stocks in the broader technology space are Avid Technology, Inc. AVID and Infoblox Inc. BLOX, both sporting a Zacks Rank #1(Strong Buy) and Aspen Technology, Inc. AZPN, carrying a Zacks Rank #2 (Buy). 

 

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