Microsoft Windows Revenue Flat in Q3 Earnings

By Darryl K. Taft  |  Posted 2013-04-19

Microsoft Windows Revenue Flat in Q3 Earnings

Microsoft reported fiscal third-quarter revenues of $20.49 billion and profits of $6.06 billion, up 18 percent and 19 percent, respectively, over the same quarter a year ago.

Ironically, the software giant achieved these numbers in spite of a slump in PC sales, as revenues from the company’s Windows division rose to $5.7 billion--a 23 percent  increase over the third quarter of 2012. However, after adjusting for the $1.1 billion of revenue related to Microsoft’s Windows Upgrade Offer, the Windows division's revenue was flat.

Microsoft did not provide any new numbers on sales of its Windows 8 operating system. But, during the quarter, Microsoft added to the Surface family of devices with the Surface Pro.

“The bold bets we made on cloud services are paying off as people increasingly choose Microsoft services including Office 365, Windows Azure, Xbox LIVE and Skype,” said Steve Ballmer, CEO at Microsoft, in a statement. “While there is still work to do, we are optimistic that the bets we’ve made on Windows devices position us well for the long-term.”

Microsoft stated that its Q3 financial results reflect the net recognition of revenue related to the Windows Upgrade Offer, Office Upgrade Offer and Pre-Sales, and the Entertainment and Devices Division Video Game Deferral, partially offset by the European Commission fine.

“The thorns in the side of the Windows Division in recent quarters stems from a declining PC market, the continued difficulty in penetrating the mobile and tablet space, and delayed customer upgrades as a result of applicability of legacy Windows solutions,” said Matthew Casey, a software analyst with Technology Business Research. “While the 23.1 percent year-to-year growth seen from Windows during 1Q13 was a positive result for the division, Microsoft’s ability to continue unifying its Windows platform across traditional, mobile and cloud based environments will enable the company to sustain positive growth through 2013.”

The Microsoft Business Division posted $6.32 billion of revenue, an 8 percent increase from the prior year period. During the quarter, Microsoft launched a new version of Office, enhancing productivity and the user experience through new mobility, social and cloud features. Microsoft’s Server & Tools business reported $5.04 billion of revenue, an 11 percent increase from the prior year period, driven by double-digit percentage revenue growth in SQL Server and System Center, the company said.

“Our enterprise business continues to thrive,” said Kevin Turner, chief operating officer at Microsoft, in a statement. “Enterprise customers are increasingly turning to Microsoft for their IT solutions and as a result, we continue to take share from our competitors in key areas including hybrid cloud, data platform and virtualization.”

Microsoft Windows Revenue Flat in Q3 Earnings

The Online Services Division reported revenue of $832 million, an 18 percent increase from the prior year period. And online advertising revenue grew 22 percent, driven by an increase in revenue per search, Microsoft said.

The Entertainment and Devices Division posted revenue of $2.53 billion, an increase of 56 percent from the prior year period. Xbox LIVE now has over 46 million members worldwide, an 18 percent increase from the prior year period, the company said.

Microsoft also announced that the company’s chief financial officer, Peter Klein, will leave the company at the end of the current fiscal year, after nearly four years in the role and 11 years at the company. Microsoft will be naming a new CFO from its finance leadership team in the next several weeks.

“Our diverse business continues to deliver solid financial results, even as we navigate the evolving device market,” Klein said in a statement. “Looking ahead, we will continue to invest in long-term growth opportunities to drive our devices and services strategy forward and deliver ongoing value to shareholders.”

Meanwhile, something else Klein said raised the interest of a key Microsoft watcher. In stating that Microsoft was going to be "responsive to customer feedback" with Windows Blue, the upcoming version of the operating system, Klein got Microsoft blogger Mary Jo Foley to thinking.

“I take this as yet another confirmation that Microsoft is moving toward make the boot-to-desktop option and some kind of Windows Start button a part of Windows Blue,” Foley wrote in a post following Microsoft’s earnings call. “I don't know if these options are likely to be available across all Windows 8 and Windows RT SKUs (or just Pro and Enterprise, which is what my Windows Weekly co-host Paul Thurrott is hearing). I also don't know if this Start Button will just be something that brings users directly to the Metro Start Screen. But I'd be that's far more likely than something that would bring them back to the old Start Menu.”

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