Microsoft Bets on India Expansion with Reliance Jio Alliance

Microsoft MSFT and Reliance Industries Limited recently inked 10-year deal in a bid to accelerate digital transformation in India.

Per the terms of the deal, Reliance Industries subsidiary, Jio Infocomm Limited or Jio, will develop data centers in India. Jio will utilize Microsoft Azure’s cloud infrastructure services including Azure AI and collaboration solutions of Office 365, among others.

This is a big win for Azure as it is expected to significantly strengthen its presence in India and provide it an edge against cloud computing rivals, Amazon’s AMZN Amazon Web Services (AWS) and Alphabet’s GOOGL Google Cloud Platform (GCP).

Expanding Azure clientele is instilling investor confidence in the stock. Notably, shares of Microsoft have returned 34.8% year to date, outperforming the industry’s rally of 28.5%.

Deal in Detail

Microsoft Azure supported Jio data centers will provide enhanced connectivity, cloud computing, and storage services. The accelerated networking capabilities are anticipated to bolster proliferation of data analytics, AI, blockchain, cognitive services, IoT, and in turn aid India-based small and medium businesses to grow.

According to the agreement, Jio is initially targeting to commence operations of two datacenters in Maharashtra and Gujarat as early as 2020.

Notably, Jio is adopting Microsoft 365 and deploying non-network applications to Azure. Further, Jio is focusing on development of computer vision and integrated speech offerings with support to regional languages of India, in a bid to create tech-driven business value.

Key Takeaways

Disruption of Cloud Market to Affect Pricing

Jio has revolutionized telecom market of India with rock-bottom subscription package utilizing 4G LTE technology. Reportedly, Jio leads the India market considering subscriber count, which exceeds 330 million.

Jio is now looking to disrupt cloud market with promising Azure alliance and offer cloud infrastructure services and robust connectivity at cost-efficient rates.

This is likely to affect user base of AWS and GCP in India, which in turn is likely to impact the pricing parameters and profitability, as market responds in favor of cost efficient solutions.

Interestingly, India is the key for the cloud majors to expand presence in South-East Asia. Meanwhile, China market is comparatively difficult to penetrate, as it is dominated by fellow players like Alibaba BABA,, Baidu, to name a few.

Booming Startup Culture Favors Prospects

Notably, India is currently experiencing demographic dividend, wherein majority of the population is below 35 years of age. India government’s initiatives including Startup India, Digital India, and Make in India, are encouraging entrepreneurship, which is a tailwind. Moreover, India is focusing on storage of critical data within the country, which is expected to favor the latest deal.

In this backdrop, we believe partnership with Reliance Jio is a masterstroke and favors Azure’s growth prospects in the country.

India Cloud Spending Growth Noteworthy

Moreover, per IDC, public cloud services and related infrastructure spending in India is projected to hit $2.9 billion in 2019, indicating year-over-year growth of 34.5%. Per Gartner data, public cloud services revenue is envisioned to reach $2.4 billion in 2019, up 24.3% over 2018, in the country.

Notably, Azure has 54 regions worldwide, including three regions in the country, including West India, Cental India and South India, which enhances business prospects.

The deal is expected to aid Microsoft to capitalize on the rapid adoption of cloud computing solutions in India, which is likely to favor the top line.

Other Factors

The latest deal is also expected to aid Microsoft with accelerated adoption of Office 365 suite of services, blockchain offerings, development of innovative AI and IoT solutions, among others.

We believe Microsoft is well poised to benefit from the partnership with Jio, and strategically expand presence in the country.

Zacks Rank

Microsoft currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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