MSFT note on Azure PLatform

Oppenheimer/MSFT: New Azure Appliance - A Private Cloud Alternative

Earlier today its annual Worldwide Partner Conference, Microsoft announced multiple partnership and customer success stories related to its Azure cloud computing platform. Most notably, the company introduced the new Windows Azure platform appliance, which enables
large enterprises to deploy and manage the Azure platform from within their own data centers. After a successful pilot program, eBay announced plans to deploy the Windows Azure platform appliance in two of its data centers later this year, which we believe is a validation point for MSFT's cloud computing platform. At ~$25, MSFT's shares remain attractive, in our view, trading at ~10x our CY11E EPS of $2.49. We expect further multiple expansion in coming months. The stock remains our top large-cap pick.

* New Azure appliance enables customers to host their own clouds. MSFT's new Windows Azure platform appliance combines the Windows Azure and SQL Azure database with "MSFT-specified hardware," and enables customers to deploy the Azure cloud compute platform from within their own datacenters.

* MSFT's OEM partners to help jump start adoption of the new appliance. In addition to highlighting the successful pilot and planned launch of the Azure appliance by eBay, MSFT announced that Dell, HP and Fujitsu are all working with the company to package their hardware with MSFT's Azure software, assist customers with the implementation, and also host those appliances from their datacenters at the customers' preference.

* Beta releases of Windows 7 & WinServer 2008 R2 Service Packs now available. MSFT also announced that the beta versions of the first service packs for Windows 7 and Windows Server 2008 R2 is now available, moving it one step closer to the final releases. While not as strong of a corporate adoption accelerator as in the past, we still believe the release of Windows 7 SP1 will spur corporate adoption of the PC OS.

* At ~$25, MSFT's shares trade at 10x our CY11E EPS of $2.49. We believe the shares remain attractive and expect multiple expansion in coming months as investors gain confidence in expense management efforts and several new product cycles take shape.