Investors should get more aggressive here on Microsoft, and while it’s noted that revenue from consumer PC licensing is expected to decline, the company can mitigate this impact on a P&L basis through a reduction in restructuring expenses. In other words, regardless of the gross margin profile of the Azure business, prior year comps are relatively easy to hop over. As you can tell, RBC estimates that Microsoft’s gross margin from the Azure Business was -76% in FY’15, and while it’s hard to confirm the gross margin mix of Microsoft, I think the estimate is within the realm of reality. Source: RBC Capital Markets Microsoft went through a rapid capital build-out phase to support robust growth, so the amortization schedule will remain most elevated after the initial investment years. These patterns are expected to level out however, as many analysts within the IT space expect price competition to level off in the foreseeable three-year period. Furthermore, Microsoft mentioned in prior analyst/investor days that they were targeting the business to be gross profit friendly, so concerns over profitability will likely level off. The company’s gross margin percentage point improvement is expected to cumulatively increase by 13 percentage points over the next three fiscal years. Furthermore, the company had $10.011 billion in restructuring/other expenses in the prior fiscal year, which compares to zero for the upcoming year assuming a stable corporate environment. As such, the company is expected to report a 38% y/y growth rate in non-GAAP EPS for the upcoming year, according to RBC Capital Markets. However, on the downside MSFT is also expected to report 2% y/y decline in revenue, and unless if commercial cloud/Azure growth proves to be more robust, or initial concerns pertaining to PC shipment prove to be incorrect, the company may struggle with a top line beat in the foreseeable year. Nonetheless, I believe Microsoft has enough flexibility to drive significant surprises in some of its upcoming quarterly earnings report. I still rate the stock a buy on the back of this report. RBC currently has an outperform rating and $63 price target. I currently offer a $58.64 price target on Microsoft, which doesn’t offer investors a compelling return (10.87% yield including the dividend), but the safety it provides investor portfolios makes it relatively compelling.