The research note also pointed out some potential soft spots in newer Microsoft endeavors, including smartphones and online advertising. "Many investors believe Google has such an insurmountable lead that Microsoft has no choice but to continue to invest aggressively just to remain a viable alternative," Kim added. "This means that Microsoft will continue to spend heavily to bolster its online business, without realizing much of the monetization benefit Google currently enjoys."
During Microsoft's earnings call, Bill Koefoed, Microsoft's general manager of investor relations, cautioned that "expected monetization" of the Yahoo search-and-advertising agreement is "taking longer than expected" and that "international integration efforts" have been delayed as a result. That agreement stipulates that Microsoft's Bing will take over Yahoo's back-end search, in exchange for Yahoo taking over a substantial portion of the two companies' advertising sales force duties.
But Windows, as Microsoft's core business, seemed the primary focus of analysts commenting in the wake of that earnings report.
"PCs, while in line with weak expectations, did little to assuage concerns of tablet cannibalization, the stock's biggest overhang," Collins Stewart analyst Kevin Buttigeig wrote in a widely circulated research note. Nonetheless, he added, "Microsoft's own PC numbers should improve over the course of CY11 simply from better comparisons and the continuing update of Windows 7 by businesses."
Microsoft has not issued a decisive tablet response to the iPad or the growing legions of Google Android tablets. The company has announced that the next version of Windows, rumored to arrive sometime in 2012, will support system-on-a-chip architecture, in particular ARM-based systems from partners such as Qualcomm, Nvidia and Texas Instruments. ARM's expansive presence on current mobile devices suggests that Microsoft has plans to port "Windows 8," at least in some fashion, onto tablets.
In addition to its traditional lines of business, Microsoft is hoping that it's "all in" cloud strategy-centered on initiatives such as the subscription-based Office 365 and the Windows Azure development platform-will begin to reap monetary benefits at some point down the road. The company is also making a habit of refusing to break out Windows Phone 7 sales, instead choosing to emphasize metrics such as consumer satisfaction and third-party developer uptake-but given the increasing importance of mobility in the tech world, those numbers will probably have to emerge at some point.