Is Microsoft the next Apple?

October 16, 2013

Microsoft Corp. NASDAQ: MSFT

Disclosure!
Longboard Asset Management, LLC (Longboard) is an investment advisor to funds that are in the business of buying and selling securi>es and other nancial instruments. Longboard currently has a long posi>on in MicrosoB Corpora>on (MicrosoB) common stock. We do not own any op>ons on MicrosoB common stock. Longboard will prot if MicrosoB stock increases in value and will lose money if it decreases in value. Longboard may change its views about or investment posi>on in MicrosoB at any >me for any reason or for no reason. Longboard may buy, sell, cover or otherwise change the form or substance of its MicrosoB investment. Longboard disclaims any obliga>on to no>fy the market of any such changes. The informa>on and opinions expressed in this presenta>on (the Presenta>on) is based on publicly available informa>on about MicrosoB. Longboard recognizes that others may disagree with Longboards analyses, conclusions and opinions. The Presenta>on includes forward-looking statements, es>mates, projec>ons and opinions. Such statements, es>mates, projec>ons and opinions may prove to be substan>ally inaccurate and are inherently subject to signicant risks and uncertain>es beyond Longboards control. Although Longboard believes the Presenta>on is substan>ally accurate in all material respects and does not omit to state material facts necessary to make the statements therein not misleading, Longboard makes no representa>on or warranty, express or implied, as to the accuracy or completeness of the Presenta>on or any other wriNen or oral communica>on it makes with respect to MicrosoB and Longboard expressly disclaims any liability rela>ng to the Presenta>on or such communica>ons (or any inaccuracies or omissions therein). Thus, shareholders and others should conduct their own independent inves>ga>on and analysis of the Presenta>on and of MicrosoB and other companies men>oned. The Presenta>on is not investment advice or a recommenda>on or solicita>on to buy or sell any securi>es. Except where otherwise indicated, the Presenta>on speaks as of the date hereof, and Longboard undertakes no obliga>on to correct, update or revise the Presenta>on or to otherwise provide any addi>onal materials. Longboard also undertakes no commitment to take or refrain from taking any ac>on with respect to MicrosoB or any other company. As used herein, except to the extent the context otherwise requires, Longboard includes its aliates and its and their respec>ve partners, directors, ocers and employees.

For Investment Professional Use Only

The rumors of my death have been greatly exaggerated.

Perception vs. Reality!

Microso> currently suers from a legacy percepAon problem. We think Mr. Markets outlook for Mr. So>y does not match reality.

Reality

The MicrosoB Myth

PercepAon

The Future of Microsoft!

We believe that Microso> stock will trade over $60 within 3 years and that over the next 5 years Microso> will re-emerge as the markets most valuable company. The catalyst for this growth will be driven by a market dominance in enterprise cloud compuAng and high value tools and services and a powerful dierenAaAng plaNorm of Android + Windows hybrid devices.

$60 $55 $50 $45 $40 $35 $30 $25 $20 $15

Microsoft: MSFT

? ?

Why Microsoft?!
Today
The One Microso> turnaround strategy has successfully reposiAoned the company for enormous future growth, innovaAon, operaAng eciency and accountability New incoming CEO and acAvist board members to maximize shareholder value and drive strategy execuAon

Tomorrow
Microso> grows to dominate the global enterprise cloud market

IntegraAon of dual OS Android + Windows hybrid devices is a game change strategy for the devices business Microso> delivers a suite of the most producAve and dierenAated devices in the world and the enterprise market adopts them 6

Current Market Perception!

Microso> management has failed at everything in the last decade and Google, Facebook, Apple and Amazon are the new technology leaders.

Market Perception!
Culturally irrelevant brand and legacy technology company of the 1990s.

Market Perception!
Android and iOS are the technology OS standard of the future and Windows is a dying plaNorm that will destroy the Microso> franchise.

Perception vs. Reality!

Percep>on Cant win customers Dying with PCs Losing to Google, Amazon Irrelevant in Cloud Reality Dominant and growing enterprise company with high value products Growing recurring revenue base Oce 365 is massive success #1 posiAoned enterprise cloud business growing exponenAally Game changer opportunity with Android + Windows hybrid devices

Devices cant compete

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Forget PCs, Enterprise is the Story!

MicrosoB Business Division (MBD) + Server & Tools (S&T) In $Bn $45 $40 $35 $30 $25 $20 $15 $10 $5 0

CAGR +7.4%
$39.2 $32.1 $33.1 $34.2 $42.6

Revenue

+8.0% $16.9 (53%) $16.5 (50%) $17.2 (50%) $20.9 (53%)

$23.9 (54%)

EBIT1 (Margin)

2008 2009 2010 2011 2012

1Excludes Corporate Expense and 2012 aQuanAve Charge

Source: Company Financial Statements

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Enterprise is 70% of EBIT and Growing! !

MBD + S&T as Percentage of Total Business
70% 65% 60% 55% 50%

% EBIT

% Revenue

2008 2009 2010 2011 2012 These Businesses are now 70% of EBIT1
1Excludes Corporate Expense and 2012 aQuanAve Charge

Source: Company Financial Statements

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Growing Enterprise Businesses!

Product SharePoint Revenue >$2Bn Growth Rate Growing Double Digits Market Opportunity $9.5 Bn Content Management, Project Management, and CollaboraAon Market $17Bn Unied CommunicaAons Market $4Bn Server VirtualizaAon Market $19.5Bn IT OperaAons Market N/A $28Bn RDBMS Market MulA-Billion Dollar Opportunity N/A N/A

Lync System Center Dynamics SQL Server Windows Azure Visual Studio

$400mm >$1Bn >$1Bn >$5Bn >$1B? >$1Bn

N/A Growing > 20% Growing Double Digits 14.6% YOY Growth ExponenAal Growth Growing Double Digits? Growing Double Digits?

ApplicaAon VirtualizaAon >$1Bn

Source: SharePoint revenue from 11/12/2012 press release; Dynamics revenue from company nancial statements; all other values from MSFT presentaAon at UBS Tech Conference, 11/15/2012. Market Size esAmates from Gartner.

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Building the #1 Enterprise Cloud!

Trusted enterprise brand and partner Corporate IT managers prefer Microso> Incumbent Advantage Enterprise Agreements #Winning

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Ofce 365 Facts!

Oce is not Windows!
Oce does not need Windows to thrive. Ubiquitous and familiar around the world. 750 million users worldwide. Oce 365 plaNorm strategy has successfully protected the crown jewel. Improved revenue and margin opportunity in the cloud.
1Source: Steve Ballmer, Worldwide Partner Conference 2011

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Ofce 365 Facts!

Case Study: ValueAct Capital

30 users 4 Year upgrade cycle

Win-Win
Less reason to consider Google Cost savings for us Easier to deploy latest version Revenue upli> to Microso> (20%) SAckier relaAonship for future products

Annual Cost Per User: $153

Server Hardware Windows Server 2008R2 Exchange Server 2010 Exchange CALs Oce 2013

$150 $128
Oce 365 Small Business Premium

$25 $6 $6 $16

With Addi>onal Upside:

Combat piracy (42% of all so>ware was obtained through piracy in 2011 according to the BSA1) New use cases (e.g. email for non- knowledge workers)
12011 BSA Global So>ware Piracy Study, May 2012

$150 $100

Transac>onal

Oce 365

Source: ValueAct Capital PresentaAon

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Future of Microsoft Device Strategy!

Windows + Android Hybrids Game Changer One Device, Dual Boot Most producAve Most choice Highest Value Enterprise Demand

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Summary!
Microso> is a dominant and growing global enterprise technology company which has adjusted its strategy with modern ideas, innovaAon & leadership. The new One Microso> is well on its way to re- emerging as the largest market capitalizaAon company in the years ahead.
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About Longboard!
An alterna>ve approach to naviga>ng the investment ocean Longboard is an asset management rm specializing in trend following strategies. The rms principals have been invesAng in and researching trend following strategies since the late 1990s. We manage both private investment funds and mutual funds applying our trend following investment style. Trends come like a series of ocean waves, bringing the high Ade when things are good and, as condiAons recede, the low Ade appears. These trends come unexpectedly, unpredictably, and they have to be weathered with temperance, poise, and paAence- good or bad. Jesse Livermore, Reminiscences of a Stock Operator

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Contact Us!
To learn more about Longboard, connect with us at: info@longboard-am.com 602.910.6961 2355 East Camelback Road, Suite 750 Phoenix, Arizona 85016 www.longboardmutualfunds.com www.longboard-am.com

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