Windows 7 booms for Microsoft, everything else is flat

Microsoft has had a bumper quarter driven by Windows 7, as expected. I’ve put this into a table as I have before.

Quarter ending December 31st 2009 vs quarter ending December 31st 2008, $millions

Segment Revenue % change Profit % change
Client (Windows + Live) 6904 69.9 5394 98.9
Server and Tools 3844 0.24 1491 8.4
Online 581 -4.60 -466 -49.5
Business (Office) 4745 -2.78 3010 -0.36
Entertainment and devices 2902 -10.87 375 288.5

The poor performance of Vista meant latent demand for Windows 7, as both individuals and organisations deferred upgrades, which was unleashed in this quarter. Microsoft said it was a “record quarter for Windows units” and “the fastest selling operating system in history”. Windows 7 is also a strong product in its own right.

There isn’t much else to cheer about, though given the general weakness of the server market the sliver of growth there is impressive. There is still no sign of a profitable online business, which is of major concern as interest in cloud computing accelerates.

Entertainment (Xbox) is now a steady business; I’m guessing that the huge growth in profits reflects lower investment and a reduction in cost of fixing endless red rings of death thanks to better quality hardware. Revenue on the other hand is somewhat down.

Windows 7 will continue to do well, though once the upgrade bump is passed the results will be less spectacular. Windows 8 will not get the same easy ride, unless Microsoft delivers something that surprises us all with its excellence.

The positive spin on these figures is that the company still has an opportunity to reinvent itself, financed by Windows profits. It needs its own iPod equivalent to show that it can escape its Windows and Office legacy. Windows Mobile 7? Laugh if you like; but the two things with obvious growth potential in the market generally are mobile devices, and cloud computing – the two go together, of course. That said, there is no evidence yet that Microsoft has the energy and agility to reverse its poor performance to date in both areas.

Who knows, perhaps after a couple of months of mobile focus, with details to be revealed shortly at Mobile World Congress and Mix10, the picture will look more promising?

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