Microsoft reported strong results for the fiscal quarter, buoyed by strong sales of Windows 7 and Office 2010. But smartphones remain a looming question.
Microsoft announced strong results for its first fiscal quarter of 2011,
with revenues of $16.20 billion and net income of $5.41 billion. That
represents a 25 percent rise in revenues over the same quarter last year, when
the company was combating the fallout of a massive global recession.
Net income increased year-over-year by 51 percent, buoyed by strong sales of
Windows 7 and other flagship products. Some 240 million Windows 7 licenses have
sold in the year since the operating system's release.
"This was an exceptional quarter, combining solid enterprise growth and
continued strong consumer demand for Office 2010, Windows 7, and Xbox 360
consoles and games," Microsoft CFO Peter Klein wrote in an Oct. 28
statement released ahead of the earnings call.
Microsoft's shipments of servers and business PCs grew, but executives on
the company's Oct. 28 earnings call seemed interested in highlighting consumer
"Consumer demand for Office 2010 and Xbox were outstanding," Bill
Koefoed, Microsoft's general manager of Investor Relations, told media and
analysts during the call. "We see a strong pipeline of innovations from
our partners for new form factors."
While Microsoft claimed year-over-year growth in all business segments, it
still relies heavily on traditional product lines such as Windows and Office
for the lion's share of its revenue. Despite an "all in" strategy
with regard to the cloud, and additional clients for its Windows Azure
platform, the company's online-services initiatives have yet to generate
substantial cash flow. Nonetheless, online advertising grew 13 percent, and Bing
's market share continues to increase in
the wake of Microsoft's deal with Yahoo to power the latter's back-end search.
Microsoft also claimed that revenues for Office 2010, the latest version of
its productivity software, grew 15 percent for its first full quarter on the
market. In addition, company executives suggested that businesses continue to
engage in a PC refresh cycle.
"We are seeing improved business demand and adoption," Microsoft COO
Kevin Turner wrote in an Oct. 28 statement. "Our enterprise agreement
rates were strong, reflecting business commitment to Windows 7, Office 2010,
and our server and database products." On the customer side of the
equation, he added, "Demand and excitement for our cloud and commercial
online services continue to grow."
Microsoft faces another challenge in coming months with the release of its
Windows Phone 7 platform, which the company hopes will help it reverse its
declining market share in mobile. In an Oct. 28 speech at Microsoft's
Professional Developers Conference, CEO
Steve Ballmer suggested that Windows Phone 7 could capitalize on what he
described as a still-nascent smartphone market.
"We're early; there's no question we're early," he told the
. "I think we kind of nailed it. When you see it, you just
Ballmer also reiterated Microsoft's commitment to mobility. "Make no
mistake about it, we're all in," he reportedly said. "I get all kinds
of questions about, 'What if you don't do this or that,' or blah, blah, blah.
Boom, baby, that's what we're going to do."
AT&T plans to push its first two Windows Phone 7 devices onto the U.S.
market Nov. 8. Other carriers will release their own smartphones in coming
months. Given the tech industry's trend toward mobility, the success of those
devices is paramount to Microsoft's future balance sheets.
"Microsoft had a very good quarter. Windows is doing well. Office is
doing well and servers and tools are doing well," Toan Tran, an analyst
with Morningstar, wrote
in an Oct. 28 statement reprinted on Reuters
. "It's hard for Microsoft
to get investors excited about the story because they missed out on a lot of
things. They missed out on search, on mobile."
Despite those positive quarterly numbers, Tran added, "investors are
looking toward the future and saying Microsoft missed out on these big
opportunities, and their business could be disrupted."