Microsoft, in its latest financial report for the second quarter, included a risk factor alluding to the possibility of losing government deals, such as the one it struck with the U.S. Department of Defense (DoD) in October 2019. The statement did not mention the decade-long, $10 billion JEDI contract by name, though.
The company warns about possible government audits and probes relating to such contracts in the future.
We could be suspended or debarred as a governmental contractor, we could incur civil and criminal fines and penalties, and under certain circumstances, contracts may be rescinded.
Again, without pointing at any particular case, the statement mentions claims and lawsuits that the company is currently facing.
It’s not unusual for corporations like Microsoft to alert their shareholders to factors that may negatively impact their financial performance over the foreseeable future. These do not necessarily come to pass.
But Microsoft investors can’t brush aside the warnings in the financial report considering that Amazon is currently contesting the validity of the JEDI contract in court.
Amazon asked a federal court to pause the JEDI deal
In a move that got investors worried and sent Microsoft stock plunging, Amazon last week asked the U.S. Court of Federal Claims to put the JEDI contract on hold pending the determination of its validity. The Windows OS maker is aware of the importance of Azure in driving financial success, so it does not want to lose the contract.
Azure sales grew 62%, according to the latest Microsoft quarterly results. If the courts allow the JEDI deal to proceed unaltered, that will pave the way for more business contracts with different government departments, which means more revenue for Microsoft.
Losing in court would do more harm than just deny Microsoft a revenue opportunity, however. It would take away a rare chance for the software giant to show to the world that it has the tech and the means to deliver a massive hybrid cloud project.
It could give Amazon Web Services (AWS), the dominant player in cloud services, some breathing space at a time when its closest rival is playing catch up.
On a positive note, many analysts believe that Azure sales will continue to soar and drive Microsoft’s revenue growth going forward.