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Microsoft $15 billion security unit gives investors reason for hope


Satya Nadella chief executive officer, Microsoft Corp.

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In January 2021 MicrosoftThe CEO Satya NadellaFor the first time, the company revealed its security business. It was a large number.

An earnings conference call was held by Nadella, who stated that $10 billion had been earned annually and that it has increased more than 40% year-over year. This meant that it was surpassing all other Microsoft products.

These remarks were revealing. In his seven-year tenure at Microsoft’s helm, Nadella is well-known for revitalizing the company and overseeing fivefold market capital expansion. The cloud division of Microsoft was transformed into a greater threat. AmazonWeb Services on a huge market

Nadella accidentally discovered a strong growth engine by letting investors know about the immenseness of Microsoft’s security company. Only 14% of the total company revenue increased over the year before. For comparison: Palo Alto NetworksOne of the most successful pure-play security software firms, grew its revenue by 21% over the exact same time period on a basis less than $4 billion.

Andrew Rubin, the CEO of Illumio (a cybersecurity startup), said that nobody knew it would be worth $10 billion. He was speaking about Microsoft’s security revenue. Rubin’s company, which was worth $2.75B last year, was unprepared for the scale and growth of Microsoft, across several markets and each segment.

Microsoft expects to release fiscal third quarter results on Tuesday. Investors may also be able to get an additional glimpse inside its security division. Ransomware attacksThe spending of public and private sector agencies has risen in recent years, resulting in an increase in expenditure by smaller businesses as well as enterprises. Even the U.S. government can’t help but be proud. warnedThere are more cybersecurity threats after. Russia’s invasion of UkraineThis was earlier in the year.

Azure has a strong competitive edge in security. AWSRubin explained that large corporations have been Microsoft customers for years and this trust factor is a key reason.

Gregg Moskowitz was also surprised to hear Nadella reveal the growth and size of Microsoft’s security business.

Moskowitz said that he would guess between $5 billion to $10 billion. He recommends purchasing the stock.

Nadella published an update on January 20, 2022 to show that the momentum was still growing. With some assistance, security had grown to almost 45%. small acquisitionsThe revenue was over $15 billion per year. Nadella stated that more than 15,000 customers use Azure Sentinel (a cloud-based service). SplunkMicrosoft offers an alternative to poring over security information in 2019,

Rivals have an opening

Microsoft also offers security products that protect workers’ devices, monitor the usage of cloud apps, and give secure access to company resources. This makes it an attractive competitor. CrowdStrike, OktaPalo Alto Networks, among others.

CNBC was asked by a Microsoft spokesperson for comment. The statement focused on Nadella’s previous statements, where he spoke about the company’s “cross-cloud platform” products that “integrate over 50 different categories of security, compliance identity, device administration, and privacy.”

Because Microsoft doesn’t give more details, it’s hard to estimate how much Microsoft is beating smaller rivals. Market players are left to speculate.

Palo Alto Networks’ CEO Nikesh Arora stated that “there is a very big sector which is growing rapidly in the high single digits or possibly even higher,” Morgan Stanley analyst Hamza Fodderwala heard at a conference last week. There are few players that are consolidators within this sector. It’s still – I think that 3.5% was still the largest market share, depending on how you count Microsoft Security’s revenue.”

Gartner, an independent research firm estimates that Microsoft held 8.5% of all security software markets in 2021. This is a higher share than any other company.

The security community knows that Microsoft’s vulnerabilities have been exploited by hackers. Exchange ServerEmail and calendar software. This created an opportunity for those who wanted to challenge the status quo.

CrowdStrike CEO George Kurtz spoke on March 2021’s earnings call to say that Microsoft’s customers were experiencing “a crisis” of trust. This was after initial revenue disclosure.

Kurtz said that Microsoft clients had been looking into the hacks, and they were advising them to derisk their security providers. He invoked the idiom of the fox guarding the henhouse — the notion that the entity responsible for protection is actually harmful.

Microsoft needs to find new ways of being a bigger player in security. Moskowitz indicated that Microsoft might release more information about its security revenues or growth but not every quarter. Moskowitz suggested the frequency might be similar to announcements on Teams usage. After not giving an equivalent number of users for six months, Nadella stated that Teams saw 270 million active monthly users during the fourth quarter.

Moskowitz said that he doesn’t expect security revenue growth to accelerate further, but he didn’t rule out the possibility of the company losing tens or billions of dollars through an acquisition of the sector.

Moskowitz explained that they believe, strategically, they’ll be much more interested to acquire strong cloud security assets rather than companies with an on-premise heritage.

This would not be cheap. Cloud security companies traded at the highest multiples of any tech company, even after the initial market correction. This is a sign of how much money businesses spend to secure their data.

 —Ari Levy from CNBC contributed to the report.

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