Microsoft's week involved Windows Phone 7 reaching its "technical preview" milestone, and the company announcing stronger-than-expected quarterly results.
Symbolically, it could have
been a very bad week for Microsoft: As the company headed into the July 22
earnings announcement for its fiscal fourth quarter, a number of Wall Street
analysts were predicting quarterly revenues of $15.2 billion. That would be
more than enough for most companies, but it would also lag behind Apple's
revenues of $15.7 billion.
Ten years ago, the idea of
Apple surpassing Microsoft in quarterly revenues would have seemed impossible,
the fever dream of a Mac obsessive. Although Microsoft's actual revenues of
$16.02 billion placed the company ahead of its desktop-and-smartphone rival-at
least for the moment-the closeness of their respective numbers suggests that
mobile devices have truly begun to eclipse PCs; Apple's revenues were largely
buoyed by sales of its iPhone and iPad.
In turn, that renews pressure
on Microsoft to deliver with Windows Phone 7, its smartphone operating system
due by the end of 2010. On July 18,
Microsoft
announced that the platform had reached its "technical preview"
milestone, a week after it released Windows Phone Developer Tools Beta.
"Starting today,
thousands of prototype phones from Asus, LG and Samsung are making their way
into the hands of developers," Terry Myerson, corporate vice president of
Windows Phone Engineering,
wrote
in a July 18 posting on The Windows Blog. "So we're almost there-but
there is much work left to do. Together, with our early adopter customers,
developers, OEMs, and mobile operator partners we are in the home stretch."
Microsoft added that more
than 1,000 Microsoft employees had been testing Windows Phone 7 over the past
months, specifically for metrics such as battery life, usability and network
connectivity;
the
rest of the company's work force will be given devices loaded with the OS upon
their release.
While Microsoft's share of
the smartphone market has been on the decline for several quarters, executives
at last week's Worldwide Partner Conference insisted that Windows Phone 7 had a
chance to reverse that trend.
"The phone is going
through a massive inflection point," Andy Lees, senior vice president of
Microsoft's Mobile Communications Business, told an audience during his July 13
keynote address at the conference. "There's immense competition but, in
many respects, things are just beginning."
Microsoft hopes that the
unique interface of the OS, which consolidates Web content and applications
into a series of subject-specific Hubs, will attract both consumers and
businesses.
Whether or not Microsoft
eventually succeeds in its smartphone efforts, though,
its
quarterly results indicate the company will need to rely on its traditional
properties, such as Windows and Office, for the bulk of its revenue for
some time to come.
Microsoft's Windows division
reported revenues of $4.5 billion, up from $3.2 billion during the same quarter
last year. On top of that, Microsoft's Business division pulled in $5.3
billion, hinting at an uptake in enterprises and SMBs software-spending after
several quarters of slashed IT budgets. At the same time, however, its
much-touted cloud initiatives have not begun to generate equivalent cash flow.
"Microsoft's messaging
around cloud is becoming increasingly aggressive, but its execution in
traditional businesses had revenue pouring in during [the quarter]," Allan
Krans, an analyst with Technology Business Research, wrote in a July 22
research note. "Windows 7 and Office 2010 have generated significant
growth despite the ongoing economic uncertainty."
Other analysts suggested that
Microsoft could need to rely on those traditional businesses, and the revenues
they generate, for some time to come.
"We think it's too early
to see a boost from Kinect (formerly Project Natal) units, which are slated to
start shipping in early November," Katherine Egbert, an analyst with
Jefferies & Co., wrote in a July 19 research note. "We don't see Bing
search or Azure cloud services add meaningfully, despite recent market share
gains and customer wins."
In other words, Microsoft
seems to find itself in something of a transition period. On one hand, it seems
to have handily survived the economic devastation that gripped much of the tech
industry in 2009. On the other, the company's attempts to move beyond its core
businesses-no matter how profitable those businesses may be-have yet to become
profitable.
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