Microsoft wins a big contract; iRobot suffers from the trade war.
Microsoft recently announced a major victory in securing a milestone - a $10 billion Pentagon contract for cloud computing services. This contract is a massive opportunity for the company to ensure future growth. Microsoft beat Amazon.com in this bidding war, by securing it for its Azure business segment. Amazon.com still has a chance to fight back and win the contract, however. For Microsoft, this can be the start of gaining several such contracts. Thus, gaining the momentum in growing its cloud business ahead of its counterpart. Following this news, the stock price, deservedly so, jumped to an all-time high.
iRobot has been going through a rough patch for the past few months. The company's stock price has declined by over 60% since mid-summer. Initially, the stock price decline was due to increasing manufacturing costs in China, following the new round of tariffs on Chinese imports. The company is contemplating the option of diversifying its manufacturing activities outside of China to reduce costs. However, back in July, it increased its product prices to pass on a portion of tariffs to the customers. Across the board, investors didn't approve of the strategy and sent the stock price down from its all-time high of $132 to mid-$70 per share. Fast forward to October, and the price decline hasn't stopped despite the management's announcement of abandoning its strategy of passing on some U.S. tariff costs to U.S. consumers. Since the decision to reverted its prices to pre-tariff levels, demand in the U.S. has improved. Until the trade problems between the U.S. and China get resolved, iRobot will continue to face such production cost and demand challenges.
Disclaimer: Hey folks, this is Shama, and I own shares of Microsoft.