Microsoft revenue up, aided by Windows unit sales, though profit declines

The results are the first to include Windows 8

Though Microsoft's second-fiscal-quarter profit declined, company revenue increased, helped by its Windows division, where sales shot up more than 20 percent year on year.

Microsoft revenue increased 2.7 percent to US$21.46 billion in the quarter ended Dec. 31, 2012.

Net income shrunk to $6.38 billion, or $0.76 per share, from $6.62 billion, or $0.78 per share, in 2012's second fiscal quarter, the company said on Thursday.

Microsoft CEO Steve Ballmer said in a statement that the company's "big, bold ambition to reimagine Windows," along with other initiatives like its Surface tablet device and the new Windows Phone 8 OS, are paying off with customers, partners and developers.

The Windows Division generated revenue of $5.88 billion, up 24 percent year on year. However, on a pro forma basis, revenue was up 11 percent to $5.26 billion when factoring in a net deferral of revenue for the Windows Upgrade Offer and the recognition of previously deferred revenue from Windows 8 pre-sales.

The Server & Tools business, which includes products like SQL Server and System Center, posted revenue growth of 9 percent to $5.19 billion.

The Business Division, which includes the Office suite, had $5.69 billion in revenue, down 10 percent. But when adjusted for the impact of the Office Upgrade Offer and pre-sales, pro-forma revenue rose 3 percent. Revenue from server software including Lync, SharePoint and Exchange hit "double-digit percentage growth." Microsoft is expected to ship a new version of the Office suite this quarter.

The Entertainment and Devices Division, which includes the Xbox products, saw revenue decline 11 percent to $3.77 billion.

The Online Services Division, which includes online advertising generated by Web properties like the Bing search engine, increased its revenue 11 percent to $869 million.

Overall, Microsoft said that its pro-forma revenue was $22 billion, when adjusted in part to reflect revenue deferrals for several Windows, Office and video game offers, as well as pre-sales.

Windows 8 sports a radically redesigned user interface based on tile icons that is optimized for touchscreens found primarily in tablets but also in newer "hybrid" laptops and some desktop PCs, like all-in-one systems.

The new OS started shipping in October, and Microsoft has said it is satisfied with the product's sales, a message that is at odds with skeptical views from market researchers like NPD Group and IDC, as well as financial analysts from Morgan Stanley.

In November and again in January, Microsoft said that Windows 8 shipments were "roughly" in line with Windows 7 shipments at the same stage of the sales cycle three years prior.

However, NPD Group declared in late November that Windows 8 had failed to give the consumer Windows PC and tablet market enough of a boost, and that in the first four weeks after its launch Windows device sales fell 21 percent year on year.

Later in early January, NPD Group said that Windows 8 "did little to boost holiday sales or improve the year-long Windows notebook sales decline."

About a week later, Morgan Stanley financial analysts downgraded the firm's recommendation on Microsoft's stock from Overweight -- the equivalent of "buy" -- to Equal Weight, the equivalent of "hold," citing concerns over Windows 8 sales and over the PC market dynamics.

Meanwhile, IDC reported that worldwide PC shipments fell 6.4 percent to 89.8 million units in the fourth quarter of 2012, year on year, a steeper decline than the 4.4 percent IDC had anticipated. A big part of the problem was that Windows 8 failed to jump-start sales, IDC said.

Even while expressing satisfaction with Windows 8 sales, Tami Reller, CFO and chief marketing officer of the Windows Division, acknowledged in January that OEM partners hadn't made enough Windows 8 touch devices to meet the high demand for that type of computer.

"Frankly, the supply was too short," she said then at an event held at the CES show in Las Vegas where she answered questions from a JP Morgan analyst.

"There was some misalignment between where products were distributed and where the demand was," she added.

Some tablets running Windows RT -- the Windows 8 version for ARM chips -- didn't get the type of distribution "that would have been ideal," she said.

Microsoft is counting on Windows 8 to help improve the operating system's minuscule share in the white-hot tablet OS market, where it lags significantly behind iOS and Android. Meanwhile, the PC market, where Windows has historically been the dominant OS, is shrinking.

Last year, Gartner forecast that worldwide media tablet sales to end users would total 119 million units in 2012, up 98 percent compared with 2011, and that Apple's iOS would continue its dominance with a projected share of over 61 percent. Windows tablet shipments were expected to be only 4.8 million in 2012.

Microsoft has been offering Windows 8 Pro upgrades at discounted prices as low as $14.99, but prices will shoot up after Jan. 31 to $199.99.

One special offer lets people upgrade an existing Windows XP, Windows Vista or Windows 7 PC and lets them acquire Windows 8 Pro for $39.99 via Windows.com download or $69.99 from a retail store DVD. The other offer, priced at $14.99, is for consumers upgrading a new Windows 7 PC bought between June 2 of last year and Jan. 31 -- they have until Feb. 28 to register for the special upgrade price.

After Jan. 31, people will also be able to upgrade for the first time to the regular version of Windows 8 for $119.99.

Windows 8 Pro is more advanced than Windows 8 in areas like security, networking, virtualization and remote desktop access.

Juan Carlos Perez covers enterprise communication/collaboration suites, operating systems, browsers and general technology breaking news for The IDG News Service. Follow Juan on Twitter at @JuanCPerezIDG.

Join the Good Gear Guide newsletter!

Error: Please check your email address.
Rocket to Success - Your 10 Tips for Smarter ERP System Selection

Tags business issuesMicrosoftsoftwarefinancial resultsinternet

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Juan Carlos Perez

IDG News Service
Show Comments

Most Popular Reviews

Latest Articles

Resources

PCW Evaluation Team

Matthew Stivala

HP OfficeJet 250 Mobile Printer

The HP OfficeJet 250 Mobile Printer is a great device that fits perfectly into my fast paced and mobile lifestyle. My first impression of the printer itself was how incredibly compact and sleek the device was.

Armand Abogado

HP OfficeJet 250 Mobile Printer

Wireless printing from my iPhone was also a handy feature, the whole experience was quick and seamless with no setup requirements - accessed through the default iOS printing menu options.

Azadeh Williams

HP OfficeJet Pro 8730

A smarter way to print for busy small business owners, combining speedy printing with scanning and copying, making it easier to produce high quality documents and images at a touch of a button.

Andrew Grant

HP OfficeJet Pro 8730

I've had a multifunction printer in the office going on 10 years now. It was a neat bit of kit back in the day -- print, copy, scan, fax -- when printing over WiFi felt a bit like magic. It’s seen better days though and an upgrade’s well overdue. This HP OfficeJet Pro 8730 looks like it ticks all the same boxes: print, copy, scan, and fax. (Really? Does anyone fax anything any more? I guess it's good to know the facility’s there, just in case.) Printing over WiFi is more-or- less standard these days.

Ed Dawson

HP OfficeJet Pro 8730

As a freelance writer who is always on the go, I like my technology to be both efficient and effective so I can do my job well. The HP OfficeJet Pro 8730 Inkjet Printer ticks all the boxes in terms of form factor, performance and user interface.

Michael Hargreaves

Windows 10 for Business / Dell XPS 13

I’d happily recommend this touchscreen laptop and Windows 10 as a great way to get serious work done at a desk or on the road.

Featured Content

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?