Yesterday, Microsoft released their 3rd Quarter Earnings statement, and reported a stellar quarter. This morning, $MSFTs US stock market price is up over 5.5% on the news (and up over 20% since last April – you can follow some of our favorite stocks easily in our sidebar).
A quick rundown of the numbers shows that despite what tech pundits say about Microsoft losing its prowess, the company is still a force to be reckoned with, and PCs, Office, and Windows Servers still make a LOT of money. Quarterly revenue was $17.41 Billion, up 6% from last year’s 3rd quarter, Server and Tools was up 14%, the Business Division (which includes Office) was up 9%, and the Windows and Windows Live Division (how long til they drop the “Windows Live” part, by the way?) was up 4%. Even the ever-losing Online Services Division (read: Bing) lost less this past quarter than it has been losing, and the only “bad” news was that Entertainment and Devices, which includes Xbox, but also still includes Windows Phone and Skype, for now.
The quarterly earnings press release quotes Steve Ballmer, who is optimistic, too, about the future:
“We’re driving toward exciting launches across the entire company, while delivering strong financial results,” said Steve Ballmer, chief executive officer at Microsoft.“With the upcoming release of new Windows 8 PCs and tablets, the next version of Office, and a wide array of products and services for the enterprise and consumers, we will be delivering exceptional value to all our customers in the year ahead.”
But can Microsoft continue this quarter’s performance? The Windows and Windows Live Division’s strong showing was almost entirely because of continued uptake of Windows 7 in the enterprise, and while that’s great, strong adoption of Windows 7 means delayed adoption of Windows 8 down the road, especially when the most compelling features of Windows 8 are for consumers, and not enterprise.
And consumer adoption of Windows 8 is no slam dunk, either. Apple is certainly not going to sit still and wait for Microsoft to put a claim on the market, and neither is Intel going to allow ARM devices to become the default consumer choice for a Windows tablet, if it can help it. Expect Intel to make a strong showing with full-on Windows 8 tablets, but then what becomes of Windows on ARM, or “Windows RT” tablets? Imagine what the tech press would do if WoA sales are soft! And even still, there’s no guarantee (and actually quite a lot of evidence to the contrary) that Windows 8 tablets, Intel or ARM, will be able to break the hold Apple has on the tablet market.
Microsoft has already said that there will be no new Xbox hardware announcements at E3, breaking the bad news last month to Game Informer:
Ryan James, Group PR Manager for Microsoft Studios, said in a statement sent to Game Informer, "While we appreciate all the interest in our long-range plans for the future, we can confirm that there will be no talk of new Xbox hardware at E3 or anytime soon.
"For us, 2012 is all about Xbox 360—and it’s the best year ever for Xbox 360. The console is coming off its biggest year ever—a year in which Xbox outsold all other consoles worldwide."
Yet game console sales are soft across the industry while gamers (and connected entertainment lovers) wait for the next big thing. Is Microsoft making a mistake trying to squeeze every last drop out of the Xbox 360?
While it’s great news that Bing is losing less money that it has in the past, its search market share has never been able to put a dent in Google’s, instead taking share away from Yahoo!, a quite cannibalistic process. Yahoo! is exploring its options as it restructures under new CEO Scott Thompson, and while we doubt the US Department of Justice would allow Google to swoop in (in fact, they pretty much blocked that very thing from happening in 2008), the future of Bing and Yahoo!, on which Bing depends greatly, is up in the air.
So much of Microsoft’s future lies in the hands of Windows Phone, and that’s not a good thing, at least not at the moment. Even with Nokia’s help, Windows Phone has failed to take off, and Microsoft is counting on the popularity of Metro to fuel not only Windows Phone, but Windows 8 sales. Consumers are going to be cautious, at best, in buying a new Windows Phone, at least until Windows 8 Phones come out, as it’s become clear that there may not be an upgrade path from current Windows Phones to the new Windows Phone 8 OS.
Again, Apple is not going to stand still here, either. Add in Android, which is suffering from a fragmented ecosystem, but is still selling lots of phones and should work through the fragmentation problems, and Windows Phone, its expenses buried in the latest E&D numbers, could become far more of a drain on the company than the flag bearer it is meant to be.
So, great quarter, Microsoft, but the real work lies ahead: fighting the Apple juggernaut on two fronts, while fighting Google on a third, jumpstarting Windows Phone in time to keep Nokia alive, squeezing the last remaining drops out of Xbox without missing on the living room future of connected entertainment as both Apple and Google move in, and selling Windows 8 in a crowded ecosystem where the biggest competitor may be Windows 7. Can Microsoft pull off a future filled with blowout earnings reports?