The air is beginning to get a bit thin for the Redmond tech giant, as reports released Friday showed Microsoft climbing to the number two spot on the list of most valuable companies in the world, bumping out Exxon by roughly $9 billion.
The cause for Microsoft and Exxon swapping places is two-fold, in that while the price of oil has been dropping, along with Exxon’s share price, Microsoft has been on the rise since October following reports of strong fiscal first-quarter gains with its cloud computing business at its heart. Microsoft has also been making waves recently with its Surface Pro 3, which despite not having the kind of sales numbers Apple’s iPad line enjoys, is quickly gaining fame online as quite possibly the best tablet on the market.
The companies actually traded places Thursday, when Exxon’s market capitalization dropped $3.1 billion to an end-of-day value of $400.8 billion.
Friday markets showed Microsoft Corp. shares climbing 20 cents to $49.81, and a market capitalization of $410.5 billion. Likewise, Exxon Mobil Corp. shares rose 24 cents to $94.90, but it wasn’t enough to push Microsoft back down to third, ending the day with a market capitalization of $401.9 billion.
Of course, Apple still sits far above the rest, enjoying a cool $668.2 billion market capitalization.
There’s little doubt that Microsoft has undergone an intense metamorphosis under the leadership of CEO Satya Nadella. His “cloud first, mobile first” focus for the company seems to be paying off, and rather quickly at that. The company has been making moves that analysts are saying “the old Microsoft” would have never done, such as the recent release of Microsoft’s Office suite on iOS, the new Microsoft Band being one of the first fitness trackers to work across Windows Phone, iOS, and Android, and a surprising partnership with Dropbox, a direct competitor to their own OneDrive service, to provide cloud storage and collaborative efforts to Office 365 subscribers.
The rise to number two is also aided by sales of Microsoft’s Surface Pro 3 tablet, which for the first time out of the history of Surface tablets has proven to be a profitable endeavor. Compare that to the first round of Surface tablets, spearheaded by the ARM-based Surface RT, which sold so poorly, Microsoft had to write off nearly $900 million in inventory last year. Both the Surface 2 and Surface Pro 2 didn’t exactly have Apple fearing its stake in the market, either.
Finally, Microsoft has restored a bit of investor confidence by announcing that Xbox One consoles have been outpacing Sony’s PS4 consoles for the past two weeks. However, the Xbox’s success is due largely to Microsoft having cut out the Kinect motion sensor and slashing the price on the unit to $349. This price cut risks cannibalizing profits, due to Microsoft taking a net loss on each unit sold even at the original $499 price tag. By removing the Kinect, however, and since the price of materials has dropped since launch, the jury is currently out as to whether or not Microsoft is still taking a loss on each Xbox One sold. However, with more Xbox consoles in consumers’ homes comes more subscribers to Xbox’s subscription services like Xbox Live and Xbox Music Pass.
What are your thoughts on Microsoft? Does the new direction for the company promise big growth or big disappointment? Leave your thoughts in the comments below.