Nomura's Sherlund Comments on Microsoft (MSFT), salesforce.com (CRM) Deal

Nomura's Rick Sherlund is issuing commentary following news Thursday night that Microsoft Corp. (Nasdaq: MSFT) and salesforce.com (NYSE: CRM) entered a strategic partnership. The analyst has Microsoft at Buy with a price target of $65.

Sherlund had the following key takeaways:

• Integration with legacy systems and other previously automated business processes provides value to customers. If salesforce’s competitors (Oracle, SAP and Microsoft) ultimately (say 5 – 10 years) deliver close enough to feature parity, their benefits of integration with legacy processes can become a more important determinant of longer-term success. By working with Microsoft and Oracle (NYSE: ORCL), we believe salesforce delivers better long-term benefits of integration to its customers and enhances its longer-term competitive position;

• For MSFT, this will further reinforce the importance of Office 365 for businesses. Salesforce is already the dominant market share leader in CRM and in the cloud, and this partnership enhances the value of Office for the cloud. Microsoft is also trying to leverage this to benefit Windows Phone 8.1, which is also part of the partnership. Windows Phone needs all the help it can get, so trying to leverage the business advantage is playing to its strengths, if only businesses bought phones like they did Blackberries;

• The partnership may have a negative effect on MSFT’s cloud-based Dynamics CRM which nicely leverages integration with Office, though this is a very small business (we estimate $83mn in the quarter ending March 2014); and

• The company has not yet been able to bring about a partnership with SAP AG (NYSE: SAP), likely because SAP has the ultimate trump card of integration with mission critical systems it may wish to preserve for longer-term potential competitive advantage.

For an analyst ratings summary and ratings history on Microsoft click here. For more ratings news on Microsoft click here.

Microsoft closed at $40.34 yesterday.

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