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Microsoft’s sales and profits may be down sharply, but executives still said they were pleased with the company’s quarterly performance, saying that they were now well positioned for a “recovering economy,” which they expect to see next calendar year. Already, CFO Chris Liddell said the company was benefiting from “good consumer demand” for PCs, although business spending was still lagging.
Some highlights from Liddell’s remarks, with an emphasis on Microsoft’s online businesses:
— Search: Liddell said the company was “very happy” with the performance of its revamped search engine, adding that search revenue was up in the “mid-single digits” during the quarter. That’s a contrast to Yahoo (NSDQ: YHOO), which reported a 19 percent drop in search ad sales during the period and more in line with Google (NSDQ: GOOG), which posted an 8 percent increase in overall revenue.
— Display: Asked whether the company had been ignoring display ad sales because of its emphasis on search, Liddell said there had been “no lack of focus.” He said the company was “performing relatively in line (with the market) certainly with Yahoo when we saw their numbers.” (Yahoo’s display ad revenue dropped 8 percent). However, he said monetization remained difficult because of economic weakness. “We should start to see that improve,” he said.
— Microsoft-Yahoo: Liddell said the company will incur between $100 million and $200 million in transition costs due to its advertising deal with Yahoo; that amount will vary depending on how rapidly the deal gets regulatory approval. The company, however, does not expect to get any revenue from the partnership this fiscal year. Next year, it is expecting to get in the “hundreds of millions” in sales from it.
— Entertainment and devices: While Xbox sales were impacted by price cuts, total gaming sales nevertheless increased by nearly $100 million. Going ahead, executives said they expect drops in sales this quarter because of tough comparisons.
— Windows 7: With the release of Windows 7, Microsoft (NSDQ: MSFT) (unsurprisingly) says it has a “very solid, great product for (a) recovering PC market.” The company expects sales of Windows to be in line or ahead of growth in the PC market this quarter.
— Share buybacks: Microsoft repurchased $1.4 billion in shares during the quarter, ending a two quarter streak of no share buybacks.