Blog Post

Microsoft earnings: Windows wasn’t as bad as expected but it wasn’t good either

Stay on Top of Enterprise Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

The biggest news out of Microsoft’s (s msft) third quarter earnings call was that its flagship Windows business held up better than expected after reports of the demise of the PC market. But it still wasn’t perky. Once a big¬†upgrade was factored in, Windows revenue was flat year over year — more sobering news for a company that built its fortunes providing operating system for PCs.

All things considered, however,¬†Microsoft had a pretty good quarter — with profit of $6.06 billion, up a healthy 18.5 percent from a year ago. Not bad for a company that’s been slammed for missing the smartphone and tablet revolution. It shipped Windows 8 in November as part of its bid for credibility in these new form factors, but the OS met with mixed reviews. On the call, Microsoft CFO Pete Klein (who will leave the company at the end of the fiscal year) noted the challenge:

“There is no doubt that the device market is evolving. Consumers and businesses are increasingly shifting their focus to touch and mobility, and as a result, they want touch-enabled computing devices that are ultrathin, lightweight, and have long battery life. While Windows revenue has been impacted by the transition from the traditional PC to a new era of computing devices, the overall addressable markets are growing, and we are excited by the opportunities ahead of us.”

He reiterated that it is moving to an “accelerated pace for updates and innovations” starting with Windows 8 to meet the challenge.” windows3q Klein also said Microsoft’s big investment in cloud is starting to pay off with broader adoption of Office 365, which delivers including Word and Excel functionality as a service. “One in four of our enterprise customers now has Office 365, and the business is on a $1 billion annual revenue run rate,” Klein said.

Some on Twitter noted that in a dismal economy Microsoft managed to post pretty impressive profit growth. Maybe that means folks will stop calling for Microsoft CEO Steve Ballmer’s head. But then again, maybe not.

8 Responses to “Microsoft earnings: Windows wasn’t as bad as expected but it wasn’t good either”

  1. Andre Goulet

    Some of it is income from those of us scrambling to buy the last version of some of Microsoft’s products, to insulate us from their new products which we don’t want. I, a one-man consulting firm, have bought a half dozen small business servers so I could get SBS 2011 (with Exchange) and a bunch of Office 2010’s so I could avoid Office 2013 (Office 365 in a box, in disguise, really). We are not moving to the cloud with Microsoft.

    So Microsoft’s numbers include those of us who look like customers for the time being, but who are actually rushing away from a future with them if they stay on the path they are on.

  2. You have to remember that even RIM made “record breaking profits” even 2-3 years after the iPhone was introduced, and being slammed in the press for not being able to match the iPhone. Businesses are helped by inertia, even when their products are no longer competitive. But when that inertia stops, Microsoft will really feel it.

    Plus, it’s a little strange, to say the least, that Microsoft didn’t give the actual number of new Windows 8 licenses, which makes me think they used some accounting tricks to show “at least” a flat revenue for the Windows division. Perhaps they added the Surface revenue to the Windows 8 license revenue, to make up for the loss of licenses, or something like that. Someone needs to dig deeper into why the numbers are how they are.

  3. hundoman

    Well I am guessing that anyone who had held Microsoft stock over the last 6 months has to be a lot happier than if they held the same amount of Apple stock. Apple has lost 33%+ of its value in just that time period and things aren’t look any better in the foreseeable future either.

    Apple is done as it’s over-price iOS hardware and software model is done once carriers stop subsiding the phones like only happens in the US market and nowhere else. I mean who wants to pay $100+ dollars for Apple only adapters while you can buy simple $2 dollar USB and HDMI cables on any other smart phone and tablet ecosystem.

    80% of the people with smart phone’s only care about email, contacts and calendar information and with everything moving to the same cloud based status Apple doesn’t have a monopoly on that. Apps and the whole Apple iOS environment are gonna die a slow but painful death as people realized they can get the same experience from free HTML rather than paying Apple for Apps.

  4. realjjj

    “The Windows Division posted revenue of $5.70 billion, a 23% increase from the prior year period. Adjusting for the recognition of revenue related to the Windows Upgrade Offer, Windows Division non-GAAP revenue was flat. During the quarter, we added to the Surface family of devices with Surface Pro.”

    I do wonder if they are placing the Surface Pro in the Windows Division revenue…