Microsoft Promoted Azure, Office 2010 During Earnings Call, But Dodged Mobile

Microsoft signaled during a Jan. 28 earnings call that a variety of initiatives, including Office 2010, Azure and Project Natal, would help power its revenues throughout 2010. However, Microsoft executives seemed less forthcoming about the possible debut of Windows Mobile 7, the smartphone operating system that could make or break the company's plans in the mobile arena, deferring instead to an announcement during the Mobile World Congress in Barcelona in February. Microsoft also stated that netbooks and a possible Windows 7 Service Pack were non-factors in affecting the company's Windows 7 revenue.

Microsoft is betting its success in 2010 on a variety of initiatives, including the Azure cloud platform, the Project Natal gaming application and Office 2010. However, executives during the company's Jan. 28 earnings call remained elusive about Windows Mobile 7, the long-rumored smartphone operating system that could potentially mean success or failure for Microsoft in that space.

Peter Klein, Microsoft's chief financial officer, promoted both Azure and Natal during the earnings call, referring to the former as the cloud platform that will provide developers with a "smooth transition to the cloud with tools and processes," and the latter as something that "will energize this generation's gaming and entertainment experience starting this holiday season."

Klein proved less effuse about Windows Mobile, though, suggesting only that "the next version of Windows Mobile" will be talked about by the company during February's World Mobile Congress in Barcelona.

Bill Koefoed, Microsoft's general manager of Investor Relations, said during the earnings call that the company is making "progress" in the smartphone arena. Microsoft has scheduled a press conference for Feb. 15 in Barcelona, followed by a financial analyst briefing, which has set the blogosphere buzzing about the possibility of a Windows Mobile 7 unveiling.

Click here for 10 Windows Mobile smartphones on display at CES.

Microsoft has repeatedly turned down eWEEK's queries regarding Mobile 7 with the statement: "We're always working on future versions and have nothing new to announce."

But earlier comments by Robbie Bach, president of Microsoft's Entertainment and Devices Division, seemed to indicate that something fairly substantial is in the works for the Mobile World Congress. During a news conference at January's Consumer Electronics Show (CES) in Las Vegas, Bach said: "We're going to have some new things that we'll talk about at Mobile World Congress. ... When you look at the product, I'm sort of like, I have the luxury of having seen it, to be able to look at it and played with it a little bit, but I'm certainly confident that people are going to see it as something that's differentiated."

That "product" could either be Mobile 7 or else a newly updated version of the current Mobile 6.5, which made its debut in October 2009. Microsoft has generally refused to comment on a possible release date for Mobile 7, but popular consensus seems to suggest it will be released sometime in late 2010.

During the Jan. 28 earnings call, Microsoft reported that revenues for its Entertainment and Devices Division dipped from $3.25 billion to $2.9 billion. The company has seen market share of Windows Mobile continue to dip in the face of strong competition from Google Android, Apple's iPhone, and other consumer- and business-oriented devices; the release of Mobile 6.5 was termed by one Microsoft executive as an attempt as a "restart," and the hope is that Mobile 7 might reverse that downward market trend.

Overall, though, Microsoft's financial picture is a little rosier than a year ago, when a global recession battered much of the tech industry along with Redmond's revenue streams. As the consumer PC market has returned to growth, Microsoft's revenues have also increased, buoyed by the strong sales of its newest operating system; according to the company, some 60 million Windows 7 licenses have been sold since the platform's Oct. 22 release.

According to one analyst, though, the continuing popularity of netbooks could potentially weigh down that Windows-related revenue stream.

"Many investors believe that much of the growth of netbook computers today is coming at the expense of traditional PC sales, especially laptops, rather than providing incremental market opportunities in the PC market," Yun Kim, an analyst with Broadpoint AmTech, wrote in a Jan. 29 research note on Microsoft. "With pricing for the Windows operating system on netbooks estimated to be only one-half to one-third of a typical Windows on a traditional PC, investors believe the emergence of netbooks could negatively pressure [Microsoft's] Windows business in the near-term."

In addition, Kim added, netbooks provide a front for possible competitive pressure. "[Investors] fear a pricing war could be brewing as fine-tuned versions of Linux, Google's Android, and other platforms compete for market share in the fast growing netbook space."

During the earnings call, Klein insisted that the dilutive impact of netbooks on the market had "stabilized" and that "the mix has stayed stable."

With regard to Windows 7, Klein also tried to downplay the prospect of businesses waiting for the first service pack before adopting the operating system.

"I will tell you the activity and the conversation, there is nothing about waiting for service packs," he told one analyst. "Everybody is super-excited about Windows 7 right now, and so there is a ton of activity. How that will play out in the deployment cycles remains to be seen and people are working through that-I would say there is way more business activity now than in previous launches."

But Klein and Koefoed both acknowledged that, while quarterly revenue was high and demand on the consumer side seemed to be elevated, the company had not seen a return to enterprise software growth. Business PC sales remained "weak," according to Koefoed.

Microsoft is betting that the rollout of new versions of certain software programs throughout 2010, including Office 2010, will help spark a healthier uptake among enterprises and SMBs (small- to medium-sized businesses). Success of Azure and Natal also has the potential to contribute substantially to the company's bottom line. But any guesses as to the role of Mobile in Microsoft's 2010 will likely have to continue to wait until Barcelona.