Microsoft posted strong quarterly revenues off sales of Kinect and other products, but faces challenges in online services. Net income totaled $6.63 billion.
Numberswise, Microsoft's latest quarterly earnings suggest a lot of upside
for the company, with a stronger-than-expected $19.95 billion in revenue and
$6.63 billion in net income. However, many of its latest and most high-profile
initiatives-including Windows Phone 7 and cloud software-have yet to pay the
same sort of real-world dividends as traditional products such as Windows 7 and
Office 2010.
Net income fell slightly year over year, from $6.66 billion for the same
quarter in 2009.
Microsoft reported positive news in a number of diverse segments. For the
three months ended Dec. 31, its Business Division revenue grew 24 percent year over
year. In addition, some 8 million Kinect units apparently sold in the
hands-free controller's first 60 days of release, giving the company a solid
win on the consumer side of the equation and helping boost revenues for its
Entertainment and Devices Division.
Peter Klein, Microsoft's chief financial officer, told analysts and media
listening on a Jan. 27 earnings call that Kinect is "our opportunity to
fundamentally change how people interact with technology." Certainly, it
represents the fruits of Microsoft's research into natural user interface and
related technology areas.
Microsoft's flagship products also continued to sell well. It reported more
than 300 million Windows 7 licenses sold since the operating system's October
2009 release. Office 2010 licenses shipped at a steady rate, outpacing Office
2007 sales over an equivalent period by 50 percent. Klein claimed during the
earnings call that some 90 percent of enterprises worldwide had started their
migration to Windows 7.
As announced at January's Consumer Electronics Show, the next version of
Windows will support system-on-a-chip (SoC) architecture, in particular ARM-based
systems. Windows currently dominates the x86 platform leveraged by traditional
PCs, but the rise of mobile devices that leverage ARM
architecture-in particular, tablets and smartphones-offers both a potential
threat and market channel for Windows software.
But the company took significant financial hits in other areas. Its Online
Services Division, for example, suffered operating losses of $543 million for
the quarter, a significant downtick from the $463 million burnt during the same
quarter in 2009. With total losses of $1.1 billion for the six months ended
Dec. 31, Microsoft is clearly willing to pay to keep its Bing search engine in
the game against Google. A recent alliance with Facebook, increasingly a Google
opponent, could help Microsoft gain some traction in this area.
Despite claiming "strong" interest from businesses in its "all
in" cloud strategy, Microsoft also has yet to see substantial profits for
initiatives such as Azure. Over the next few quarters, the company will release
cloud-based products, including Office 365, designed to fit a variety of
business needs-but it also faces competition in the area from the likes of
Google and Salesforce.com, which have made no secret of their intentions of
seize large chunks of the enterprise-spending pie.
Microsoft's Server and Tools Business-in many ways the epicenter of its
cloud strategy-is primed to undergo a shakeup this year with the departure of
longtime division President Bob Muglia. "While Windows and Office are
household words, our Server and Tools business has quietly and steadily grown
to be the unquestioned leader in server computing," Microsoft CEO
Steve Ballmer wrote
in a Jan. 10 e-mail to employees announcing Muglia's removal. "We are
now ready to build on our success and move forward into the era of cloud
computing."
Microsoft executives on the earnings call declined to mention how many
Windows Phone 7 devices had sold to consumers. "We're pleased with the
initial response," Klein said. "While we are encouraged by the early
progress, we realize we have a lot of work ahead of us."
Microsoft
reconfirmed that some 2 million Windows Phone units have been shipped by
manufacturers to retailers. A software update is being prepped for release
within the next few weeks, which will tweak application speed and add a missing
cut-and-paste feature. Klein reiterated the company's argument that consumers
are responding positively to the platform.
Nicholas Kolakowski is a staff editor at eWEEK, covering Microsoft and other companies in the enterprise space, as well as evolving technology such as tablet PCs. His work has appeared in The Washington Post, Playboy, WebMD, AARP the Magazine, AutoWeek, Washington City Paper, Trader Monthly, and Private Air. He lives in Brooklyn, New York.
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