I am in the habit of putting Microsoft’s results into a simple table. Here are the latest:
Quarter ending June 30th 2012 vs quarter ending June 30th 2011, $millions
|Client (Windows + Live)||4145||-598||2397||-511|
|Server and Tools||5092||+568||2095||+409|
|Entertainment and devices||1779||+292||-263||-276|
It is easy to spot the stars: Server and Office.
It is also easy to spot the weaklings, especially Online, which reported a breathtaking loss thanks to what the accounts call a “goodwill impairment charge”. This translates to an admission that the 2007 acquisition of aQuantive was a complete waste of money.
Mixed signals from Entertainment and devices, where revenue is up but a loss is reported. Since this segment munges together Xbox and Windows Phone, it seems plausible that the phone is the main culprit here. Microsoft identifies payments made to Nokia and the addition of Skype as factors.
Windows is down, in part because Microsoft’s upgrade offer for Windows 8 means some revenue is deferred, though one would imagine that worldwide reports of stagnant PC sales are a contributory factor as well.
If you add up the figures, and allow for overheads, it comes to a wafer-thin operating income of $192 million and a $0.06 loss per share.
What do the figures tell us? Two things: Microsoft still makes a ton of money, and that it is exceedingly bad at acquisitions. I am not sure how a company can mislay $6.2bn without heads rolling somewhere, but that is not my area of expertise.
Microsoft’s Server 2012 family has impressed me so my instinct is that we will see good figures continue there.
On the Office side, it is not all Word and Excel. “Exchange, SharePoint and Lync together grew double-digits,” Microsoft said in its earnings call, adding that Lync revenue is up 45%.
That said, how many server licences can you sell in the cloud era? How can Microsoft grow Azure without cannibalising its server sales?
It is tempting to state, like James Governor at Redmonk, that this is The End of Software: Microsoft Posts a Loss for the First Time ever. Microsoft’s figures have stubbornly refused to prove this though; and a quarter where revenue has risen though poisoned by an acquisition disaster is not the moment to call it.
Microsoft has survived the cloud. The bigger question now is whether it can also survive tablets eating into its Windows sales, not helped by Google pushing out Nexus 7 at casual purchase price – see my first take here.
All eyes then on the new Windows 8 and Office 2013.
7 thoughts on “Microsoft financials: still growing in the cloud era, but watch out for tablets”
“The bigger question now is whether it can also survive tablets eating into its Windows sales,”
How can tablets cannibalize PCs ? They are not for the same people and not for the same use. Do you own a tablet ? If yes do you appreciate how productive you get when you return to using the mouse and keyboard?
If you are right then Windows 8 might be a big mistake.
Windows 8 upgrade deferral took out $0.54 billion of $4.69 billion in Windows revenue. Excluding the deferral, Windows is down 1% since the year-ago quarter.
As for server sales in the cloud era, my understanding is that the revenues from hosted applications go into the same divisions as the revenues from server licensing. There’s simply more of a lag when they make a sale, as the subscription revenues come in over a period of time rather than all up front.
Thanks for the detail on Windows upgrade deferral.
Yes, hosted revenue goes to the same divisions, but how do the margins compare? Which channel is more profitable? It would be interesting to know.
It is easy to tell stories of doom, the tricky part is to see the opportunities and bet on them.
The really big question isn’t if Windows 8 is a mistake or not, the big question is if the cloud is, I don’t mean from a technological point, but from a monetization point of view.
Google is getting freaky, Apple is getting greedy and Microsoft is mostly confused in the middle.
Windows 8 is likely a mistake if you view it from a point of PC productivity, but then again, Windows 8 isn’t for the desktops, they have Windows 7 for that, and they already sold lumps of it and most business are switching to it and that will keep the momentum going while they figure out how to bring Windows 9 to the desktops, while still being able to at least try at the tablet and phone market.
I for one, think that a laptop, which means a device with keyboard/mouse and with the battery life and weight of a tablet and touch input is what people actually want. Surface is trying to fit into that slot, Microsoft’s problem is that they are too slow, or rather they announce things long before you can actually get them and competition around them will quickly adopt whatever good idea they have and deliver it before Microsoft does.
In that context, Windows 8 are two devices in one, together with surface it might even be good enough to let people get rid of one device, 3 is really one too many.
It is interesting though that you think that the day when Microsoft loses out is the day they fail not when others succeed.
But Tim, what would you have done if you were Microsoft and was planning the vNext release of Windows, Office and Phone?
You really didn’t answer the question, tablets are fun, but they quickly lose their appeal when you actually have to do something. The tablet market isn’t won, it has just started and I am sure that the company that manages to bring all the “screens” together will have a good place in that market.
How about a prediction on what will succeed instead of what might fail. The odds are much better guessing at things that will fail, so take a leap, what would Microsoft have done if you were in a position to lead them?
@Niclas:”How about a prediction on what will succeed instead of what might fail. The odds are much better guessing at things that will fail, so take a leap, what would Microsoft have done if you were in a position to lead them?”
Not sure why you would expect Tim to do this, but hey, I’ll take a shot.
The #1 MS needs to do is create products that people actually want to buy, desire to buy, rush out to buy. Right now MS depends too much on IT boys as their salesmen – 60% of businesses don’t even allow Macs.
So how does MS do this? Focus and execution. Here are 5 ideas off the top of my head:
(1) Take Nokia off life support and can the WinPhone experiment. To my unpaid eye, it looks like this one belongs to Apple and Samsung:
(2) Release Office for iPad. Apple will likely sell their 100 millionth iPad this year. Isn’t that a market worth targeting? This will require MS to master touch, but the longer they wait the better Apple’s iWork apps will get and the more accustomed users will become to Office alternatives.
(3) No more vaporware. Think of how exciting it would be if sometime in Oct. MS announced the Surface RT and it was available that same day.
(4) Ballmer: No more writing big checks with your mouth that the company can’t cash:
(5) Stop the convergence. Let Win8 and WinRT UIs evolve naturally. The idea that there’s a benefit to having the same UI on all platforms sounds like the same fantasy that cross-platform toolkits preach.
@Phil: “Not sure why you would expect Tim to do this, but hey, I’ll take a shot”
I didn’t expect him to do it, I just tried to make a point that it would be a much more interesting read. It is easy to predict or talk about someone demise, much harder the other way around. Since it is harder it is also much more interesting to read.
On (3) I couldn’t agree more on that
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