Windows Decline, Botnet Reward Marked Microsoft Week

Microsoft's week included its earnings report, which revealed a dip in Windows-related revenue, and the offering of a substantial bounty for operators behind a botnet.

Microsoft's week centered on its quarterly results, which, while strong, also hinted at a potential trouble spot for the company.

The company reported revenues of $17.37 billion for its fiscal fourth quarter that ended in June, an 8 percent increase from the year-ago quarter. Quarterly operating income, net income and diluted earnings per share were $6.17 billion, $5.87 billion, and $0.69 per share, all of which represented increases. For the entirety of the fiscal year, the company reported revenues of $69.94 billion.

Most of Microsoft's divisions reported growth in revenue, including the Microsoft Business Division (driven by sales of Office 2010), Server and Tools (off products such as Windows Server), the Online Services Division, and the Entertainment & Devices Division (the Xbox Kinect hands-free game controller continues its heady sales pace). However, Windows and Windows Live Division revenue declined 1 percent during the quarter.

During the July 21 earnings call, Microsoft executives attributed this dip to softening PC sales. Considering Windows' place within Microsoft as a revenue driver, any decline is potentially disconcerting-especially since the company's "all in" cloud strategy has yet to yield substantial revenues along the lines of its traditional, desktop-bound software.

Windows 7 has sold some 400 million licenses since its October 2009 release. Microsoft has similarly high hopes for the next version of its popular operating system, internally code-named "Windows 8." In place of the traditional desktop and taskbar, Windows 8 relies on color tiles designed to be equally tablet- and PC-friendly.

The release of Windows 8 will give Microsoft the opportunity for a more substantive play in the tablet market, where the company holds something of a niche spot. According to new data from research firm Strategy Analytics, Apple's iOS occupied some 61.3 percent of the tablet market in the second quarter of 2011, followed by Android with 30.1 percent, Microsoft with 4.6 percent, and QNX (which RIM uses for the PlayBook) with 3.3 percent. Undefined "Others" brought up the rear with 0.7 percent.

"Microsoft captured a niche 5 percent global tablet share in Q2 2011, leveraging Windows 7 through partners such as Fujitsu," read a July 21 note accompanying the research. "RIM and its QNX platform captured 3 percent global tablet share in Q2 2011. The first-generation PlayBook model experienced a lackluster launch due to product design issues surrounding native email support."

Windows 7 tablets lack the presence of the iPad or Android tablets on U.S. store shelves, although Microsoft featured several meant for the Asian market at its booth during this year's Consumer Electronics Show in Las Vegas. Lenovo is gearing up to release the IdeaPad Tablet P1, which features a 1.5GHz Intel processor powering Windows 7.

Microsoft is also hoping that cloud-related revenues pick up over the next several quarters, especially in light of Office 365's recent release. That cloud-based platform, rebranding the company's BPOS (Business Productivity Online Suite), links together Microsoft Office, SharePoint Online, Exchange Online and Lync Online as a subscription service costing between $2 and $27 per month, depending on options.

"As we continue to have conversations about migrations to the cloud," Microsoft CFO Peter Klein told analysts and reporters listening to the July 21 earnings call, "you'll start to see that in our multiyear licensing revenue." He also suggested that Office 365 would boost "revenue and profit per seat while increasing customer commitment."

This week, Microsoft also reiterated its seriousness about eliminating botnets, offering a $250,000 bounty for information leading to the arrest and conviction of the operators behind the Rustock botnet-which, before Microsoft helped disable it in March, was reportedly responsible for billions of spam emails per day.

"This reward offer stems from Microsoft's recognition that the Rustock botnet is responsible for a number of criminal activities and serves to underscore our commitment to tracking down those behind it," Richard Boscovich, senior attorney for Microsoft's Digital Crimes Unit, wrote in a July 18 email posted on The Official Microsoft Blog. "The legal action Microsoft has taken in civil court has already been successful, helping us take down the Rustock botnet and disrupt its operations."

A safer online environment, of course, neatly dovetails with Microsoft's strategy to push its audience increasingly into the cloud.

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