Microsoft financials: record revenue, signs of Windows 8 concern

Yesterday Microsoft released its financial figures for the last three months of 2012.

Quarter ending December 31st 2012 vs quarter ending December 31st 2011, $millions

Segment Revenue Change Profit Change
Client (Windows + Live) 5881 +1140 3296 +416
Server and Tools 5186 +171 2121 +409
Online 869 +85 -283 +176
Business (Office) 5691 -619 3565 -623
Entertainment and devices 3772 -466 596 +79

Although Microsoft reported record revenue, I do not consider these figures all that revealing. The transcript of the earnings call is more to the point. A few notable remarks from CFO Peter Klein and General Manager Investor Relations Chris Suh

  • 60 million Windows 8 licenses sold and 100 million apps downloaded. At 1.66 apps per license that shows lack of interest in the new Windows Store and raises suspicions that some of those sales may actually be downgraded to Windows 7. The remarks from Klein confirm that the new platform is off to a slow start:

It’s early days and an ambitious endeavor like this takes time. Together with our partners, we remain focused on fully delivering the promise of Windows 8.

While the number of apps in the Windows Store has quadrupled since launch, we clearly have more work to do. We need more rich, immersive apps that give users’ access to content that informs, entertains and inspires.

  • Suh states that Windows is selling better to businesses than consumers. Declining interest from consumers is obvious if you walk around a few retailers selling Windows PCs:

Within the x86 PC market, we saw similar trends to prior quarters, with emerging markets outperforming developed markets, and business outperforming consumer. The consumer segment was most impacted by the ecosystem transition, as demand exceeded the limited assortment of touch devices available.

  • System Center 18% revenue growth
  • SQL Server revenue 16% growth
  • Online revenue (this is Bing not Azure) up 11%
  • Windows Phone sales 4 times higher than last year
  • Skype calls up 59%

The company says little about Office 365 and Azure, but my perception is that both are growing fast though how significant they are versus traditional software license sales is less clear.

Trouble ahead? With Windows 8 struggling for acceptance, Office under threat from online and device alternatives, the games console business (overall not just Microsoft) probably in permanent decline, and Windows Phone not yet quite mainstream, you would think so. On the other hand, this is a company with a broad and deep product range and looking at the solid performance of the server products and continuing strength of Windows and Office in business, we may continue to be surprised at its resilience.

One thought on “Microsoft financials: record revenue, signs of Windows 8 concern”

  1. I think the only thing slightly off in your analysis is, Office 2013 has had a very long CTP running and is not yet available to public. People like me are waiting on the wings for Office 2013 to go live instead of installing Office 2010 and then getting a ‘free’ upgrade.

    Rest of it, yes, indeed very very worrying if Windows 8 app store is not taking off as expected.


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