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Microsoft Posts Mixed Quarterly Earnings

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The big surprise coming out of Redmond, Wash., yesterday wasn’t that Microsoft Corp. reported gains in Windows says, but that its business unit, which includes the Office productivity suite franchise, posted a double-digit decline.

Microsoft reported earnings for the quarter ending December 31 of $21.5 billion, up 3 percent from the same period a year ago. Profits are down slightly, $6.4 billion compared to $6.6 billion from a year ago.

Overall, Microsoft slightly exceeded expectations, even as it reconciled deferred revenue from discounted renewals of its Windows 8 operating system, which dampened some of the Windows division performance.

As it turns out, Windows 8 sales aren’t doing all too badly. Microsoft reiterated sales figures that place Windows 8 shipments and purchases at 60 million units since its launch in October. The sales pace puts the reimagined operating system sales on par with Windows 7’s launch in 2009. Despite the PC market noting sales declines as the market shifts to tablets, the Windows division saw a 24 percent increase in revenue.

Not surprising, the server and tools business is seeing strong activity, as application developers snap up programming applications and businesses migrate to the new Windows Server 2012 platform.  Helping to drive sales in increased demand for SQL Server, which supports a number of other Microsoft business products. The unit reported 9 percent increase in sales.

The surprising weak spot is Microsoft’s business software unit, which includes the vaunted Office productivity suit. The unit posted a 10 percent decline in sales. Microsoft is shrugging off the dip, believing sales will rebound in the coming year when the new version, Office 2013, is released.

“With the coming launch of the new Office, we will provide a cloud-enabled suite of products that will deliver unparalleled productivity and flexibility,” said chief operating officer Kevin Turner.

Microsoft isn’t being too specific on sales of its Surface tablet, the first Microsoft-produced computing device to hit the market. Analysts peg Surface sales around 500,000 for the first three months of availability; which is a fraction of the 28 million iPads Apple sold in the same period. Microsoft is routinely criticized for competing with OEM and reseller partner for the self-produced, primarily direct-sale tablet.

A sign that Surface may be having an impact comes from Microsoft’s non-OEM sales, which are up 40 percent. This includes other devices, such as the line of Microsoft peripherals and the Xbox entertainment system. But the sharp increase could indicate that this fledging device is lifting Microsoft, even in small way.

Microsoft is routinely criticized for lagging competitors, such as Google and Apple, and not delivering the innovations that drove growth the way it did in the early Windows days. Management has said over the last year that Windows 8 is the cornerstone of the biggest product refresh in the company’s history. So far, the impact of that refresh is descent, but not stellar.

“Our big, bold ambition to reimagine Windows as well as launch Surface and Windows Phone 8 has sparked growing enthusiasm with our customers and unprecedented opportunity and creativity with our partners and developers,” said CEO Steve Ballmer, on the call with investors. “With new Windows devices, including Surface Pro, and the new Office on the horizon, we’ll continue to drive excitement for the Windows ecosystem and deliver our software through devices and services people love and businesses need.”

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