Microsoft Q2 Earnings Up as Windows, Enterprise Sales Rise
"There was a shortage of Windows 8 hardware last quarter largely due to vendors getting their touch-screen orders in too late," Enderle said. "I think it likely that was a big reason [Steven] Sinofsky was let go. Still this was actually better than I expected given they are about to release a new version of Office as well as suggesting their sustaining revenue from long-term contracts and online services may be reaching old IBM levels, making them far more predictable even in the face of adversity." He added, "Folks pay those contracts regardless of economic conditions or product cycles, which was the old IBM model. It really slows growth but also makes revenue and profit damn near immovable objects so that makes the company incredibly stable and predictable. We'll know better by the end of the year." "We saw strong growth in our enterprise business driven by multi-year commitments to the Microsoft platform, which positions us well for long-term growth," said Peter Klein, chief financial officer at Microsoft, in a statement. "Multi-year licensing revenue grew double digits across Windows, Server & Tools, and the Microsoft Business Division." Microsoft's Server & Tools business reported $5.19 billion of revenue, a 9 percent increase from the prior year period, driven by double-digit percentage revenue growth in SQL Server and System Center."We see strong momentum in our enterprise business. With the launch of SQL Server 2012 and Windows Server 2012, we continue to see healthy growth in our data platform and infrastructure businesses and win share from our competitors," said Kevin Turner, chief operating officer at Microsoft, in a statement. "With the coming launch of the new Office, we will provide a cloud-enabled suite of products that will deliver unparalleled productivity and flexibility."The Microsoft Business Division posted $5.69 billion of revenue, a 10 percent drop from the prior year period. Revenue from Microsoft's productivity server offerings—collectively including Lync, SharePoint, and Exchange—continued double-digit percentage growth. "The success of the company's enterprise products group isn't particularly surprising," King told eWEEK. "Microsoft has benefited hugely from businesses continuing migration to x86-based server and appliance solutions, a situation that’s likely to continue for some time. But I expect that the market and analysts will be watching closely in 2013 to see if the company's data center success mirrors any corresponding boost in sales of Windows 8 PCs, Ultrabooks, tablets and phones to businesses." The Online Services division reported revenue of $869 million, an 11 percent increase from the prior year period. Online advertising revenue grew 15 percent driven by an increase in revenue per search. The Entertainment and Devices division posted revenue of $3.77 billion, a decrease of 11 percent from the prior year period. Xbox continues to be the top-selling console in the United States. During the quarter, Microsoft launched Windows Phone 8 with a broad array of carriers and devices. "Valuation held at near current levels because they met on the top line and exceeded modest estimates on the bottom line," Enderle said. "Supply issues are mostly resolved for Windows 8 but the first quarter is typically very slow, and corporate purchases outside of enterprise contracts, which have them built in for both Office 2013 and Windows 8, aren't likely to move significantly until the second half of the year. However, year over year numbers, particularly starting in calendar Q2, should tell us whether Windows 8 really has legs." Meanwhile, Al Hilwa, an analyst with IDC, said he thought Microsoft's earnings results were good. "I think Microsoft is executing on a long-term transition, and they are aware it is not going to happen in one quarter," Hilwa said. "I think the design of Windows 8 deliberately attempts to trade off quick migration versus long-term building of a new portfolio of touch apps." Moreover, "The issue I have for developers is that they have two platforms they are promoting with Windows Phone and Windows 8, and it may be fragmenting developers who are also distracted by opportunities on other platforms," he said.