Microsoft enjoyed solid revenue during the most recent quarter, but its long-running Windows franchise experienced a slight decline. Microsoft's cloud push continues.
Microsoft offered strong
quarterly results, but one of its revenue pillars-the long-running Windows
franchise-experienced a slight decline.
The company reported revenue
of $17.37 billion for its fiscal fourth quarter ended June 2011, an 8 percent
increase from the year-ago quarter. Quarterly operating income, net income and
diluted earnings per share were $6.17 billion, $5.87 billion and $0.69 per
share, all of which represented increases. Overall, the company reported
revenue of $69.94 billion for the fiscal year.
As expected by many analysts
heading into the reporting period, Microsoft's revenue came on the back of its
flagship software products. Microsoft Business Division revenue grew 16 percent
during the quarter, driven by sales of Office 2010, while Server and Tools
revenue grew 12 percent, driven by products such as Windows Server.
Both the Online Services
Division and the Entertainment & Devices Division reported gains. In the
latter case, the hands-free Xbox Kinect game controller has proven a bestseller
and something of a life-extender for the aging console. Microsoft also
emphasized its relationships with Facebook and Yahoo, both of which are being
leveraged to increase market share for the company's Bing search engine.
Windows 7 continued to
perform strongly, selling some 400 million licenses, although Windows and
Windows Live Division revenue declined 1 percent in the fourth quarter. During
the July 21 earnings call, Microsoft executives attributed this dip to
softening PC sales.
A handful of times this
quarter, the company showed off early work on the next version of Windows,
which it has internally code-named "Windows 8." In place of the traditional
desktop and taskbar, Windows 8 relies on color tiles designed to be equally
tablet- and PC-friendly.
Microsoft also used this quarter
to further drive its "all-in" cloud strategy. "We're moving forward to the
cloud, public and private," CEO Steve Ballmer told those assembled to hear his
July 11 keynote speech at the Worldwide Partner Conference. "We're all in, and
we want partners who are all in with us."
Near the end of June,
Microsoft launched Office 365, which links Microsoft Office, SharePoint Online,
Exchange Online and Lync Online into a common platform that costs between $2
and $27 per month, depending on options. In addition to rebranding the
company's BPOS (Business Productivity Online Suite) platform, Office 365
represents Microsoft's attempt to blunt Google's momentum in the cloud productivity
Office 365 "gives us new
opportunities to address the workforce that doesn't regularly use a PC in the
workplace," Microsoft chief financial officer Peter Klein told analysts and
reporters listening to the earnings call, while suggesting that the
subscription-based service would boost "revenue and profit per seat while
increasing customer commitment."
Microsoft is also using
every opportunity-including this latest earnings call-to highlight its upcoming
Windows Phone "Mango" update, which will give the company's smartphone platform
an added 500 tweaks and features. Although research firms such as comScore
estimate Microsoft's smartphone market share as declining, Redmond clearly
hopes that continual improvements to the Windows Phone franchise-along with its
recent partnership with Nokia-will help reverse that trend.
Microsoft is also pushing
back against Google Android, one of its chief competitors in the smartphone
space, by claiming the operating system violates its patents. Over the past
several weeks, Redmond has entered into royalty agreements with a number of
Android manufacturers, a strategy it plans on continuing into the future. "We
have a firm culture and belief in innovation," Klein told an analyst during the
question-and-answer session following the earnings call. "We've done that
consistently in an industry-wide licensing program related to Android."
Even as Windows sales
flatten, and Microsoft struggles to find its footing in the smartphone space,
the company continues to push the cloud in a major way-and for good financial
reason. "As we continue to have conversations about migrations to the cloud,"
Klein added at another point, "you'll start to see that in our multiyear
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