Microsoft's Quarterly Results Dominate Week

Microsoft saw strong business software but soft Windows numbers last quarter. Analysts also made rather optimistic predictions about the company's Windows Phone.

Microsoft's quarterly results dominated its week.

Nothing in those results proved entirely unexpected: Microsoft's aspirations in the realm of entertainment, meaning its Xbox 360 and Kinect hands-free controllers, continued to sell in healthy numbers. The company's business and server software likewise continued to do good business. All told, quarterly revenue topped $20.89 billion, a year-over-year increase of 5 percent, with net income of $6.62 billion.

That being said, Microsoft also saw its all-important Windows revenue dip some 6 percent from the prior period, to $4.74 billion, thanks in large part to softening PC sales (a situation exacerbated by flooding in Thailand, which curbed the global supply of hard drives). At the same time, Windows sales in emerging markets continue to grow faster than those in developed markets, which hints that the operating system still has room to increase its customer footprint despite the 525 million licenses already sold.

Microsoft executives used a Jan. 19 earnings call to tout the company's cloud-based productivity initiatives, including Office 365. "Today, more than 100,000 businesses have made the commitment to our online services," Peter Klein, Microsoft's chief financial officer, told media and analysts listening on the call. Despite the increased penetration of Office 365 and Windows Azure among customers, however, those cloud initiatives have yet to generate revenue on the scale of Microsoft's traditional software such as Windows and Office.

Expanding its cloud reach isn't Microsoft's only big initiative for 2012: The company is betting that Windows 8, its upcoming operating system due in the latter half of 2012 (with the beta slated for release in February) will position it well to not only hold onto its longstanding market share in traditional PCs, but also break new ground in tablets. To the latter end, a document posted on a Microsoft Website-broken down in a posting on Rafael Rivera's Within Windows blog (not affiliated with Microsoft)-details Windows 8's minimum hardware requirements for tablets and convertible PCs.

Those requirements include at least 10GB of free space, WLAN and Bluetooth 4.0 + LTE (Long-Term Evolution) for networking, minimum 1,366x768 screen resolution, at least one USB 2.0 controller and exposed port, a 720p camera, and a combination of gyroscope, three-axis accelerometer and magnetometer.

"These systems are primarily focused on consumption scenarios such as Web browsing, media, and casual gaming," read an accompanying note in the Microsoft document. "It is likely that this form factor will also emerge in the enterprise as a productivity PC." In light of that, "these systems are optimized for consumption and light productivity. Requirements are based on these usage patterns."

Microsoft is also looking to its Windows Phone franchise to gain further market share in 2012. Despite the software platform's middling market presence at the moment, research firm iSuppli issued a research note this week suggesting it would take second place within the next three years, placing ahead of iOS but behind Android.

According to the firm, Nokia would be responsible for the lion's share of Windows Phone devices sold, although its share would level off as more manufacturers make increasingly robust plays within the ecosystem. "Combined with Nokia's efforts to drive the development of the Windows Phone ecosystem," Wayne Lam, iSuppli's senior analyst for wireless communications, wrote in a Jan. 19 statement, "the Lumia 900 and its successors will help Microsoft to reclaim its No. 2 ranking in smartphone operating system market share by 2015."

All told, Microsoft's quarterly numbers highlight the company's solid position heading into 2012, but its ultimate success will depend on Windows 8, Windows Phone, cloud products and other initiatives for which, obviously, precious little data exists at this time.

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