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Q1 2013 likely left Microsoft's Ballmer sweaty and frustrated.  (Source: YouTube)
Some divisions profit, but Microsoft faces uncertainty as it races ahead to Windows/Windows Phone 8

Earnings week for the tech industry has brought a lot of bad news, with a few pleasant surprises (like Intel Corp. (INTC)).  Microsoft Corp.'s (MSFTearnings definitely fall into the "bad news" category.

Microsoft, which operates two fiscal quarters ahead of the calendar quarter, saw itself narrowly miss analyst targets in both revenue and net income (profit).  The company pulled in $4.47B USD (expected: $4.72B USD) in profit on revenue of $16.008 USD (expected: $16.416B USD).

A key to the miss was plunging revenue from the Windows unit, which saw a big drop in Windows 7 sales.  Microsoft better hope that predictions of Windows 7 being the "next Windows XP" aren't true, because it's counting on Windows 8 to revive sales, with movement of the once-sterling Windows 7 slowing to a sluggish pace.

Steve Ballmer, chief executive officer at Microsoft, roared at his critics, commenting in the earnings release, "The launch of Windows 8 is the beginning of a new era at Microsoft.  Investments we’ve made over a number of years are now coming together to create a future of exceptional devices and services, with tremendous opportunity for our customers, developers, and partners."

Windows 8 Upgarde
Microsoft is currently selling Windows 8 upgrades via pre-order.

Microsoft did defer $1.36B USD (as it typically does) in pre-order revenue from its Windows Upgrade Offer program.  Windows 8 official launches next Friday on Oct. 26.

One bright spot in the earnings report was Microsoft's servers unit, which saw an 8 percent bump on revenue, mainly on big growth in SQL Server and System Center.  And in the also-somewhat-good news category, Bing and the online service division crept a bit closer to no longer being massive money losers, with revenue 9%, driven by a 15% increase in revenue per-click.  That's particularly good as the dominant force in the search market, Google Inc. (GOOG), saw a large decrease in revenue per-click after traffic acquisition costs (TAC).

The Entertainment and Devices division earnings were a revenue draw (down 1 percent).  It is currently focused on reviving Microsoft's smartphone bid with Windows Phone 8, which launches next week.  It also was able to brag that the Xbox 360 remains sales king of the American consoles market, with a 49 percent estimated market share.  The Xbox 360's successor, which some are expecting to be named the Xbox 720, is not expected to land until sometime in late 2013 or early 2014.
HTC Windows Phone 8X
Windows Phone 8 launches next week. [Images: Nokia (left), HTC (right)]

Microsoft remains one of the best earning and most successfully diversified hardware/software giants in the consumer electronics industry.  However, it continues to be defined by the burden of high expectations, speculation, and intense scrutiny surroundings its "misses".

Shares of Microsoft were hammered in morning trading, down almost 3 percent to $28.70 USD/share.

Sources: Microsoft, FT [analyst estimates]



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By TakinYourPoints on 10/19/2012 4:36:07 PM , Rating: 2
It is a ridiculous comparison either way. One is a move from CL to GUI, the other is taking an existing GUI and compromising its mouse and keyboard input.


By themaster08 on 10/20/2012 3:29:37 AM , Rating: 2
It's obvious why Microsoft are doing it this way. They need to do this in order to leverage their ecosystem.

If Microsoft simply released its OS strictly for tablets it would likely see the same success as Windows Phone. Whilst the product itself may be fantastic, people are not interested. People know what an iPad is, and to a lesser extent, know some Android tablets. People go with what they know. The competition is much too dominant and have much larger ecosystems of applications and other media content.

PC sales have already taken a nosedive. This is not something Microsoft can sustain. Even if Microsoft released a new OS with similar interface as Windows 7, to the average consumer, it would be more of the same, and they'd simply purchase an iPad, or an Android tablet. At least with Windows 8 it can usher in an entire host of new devices to get people interested in the PC market again.

Of course there are going to be many people that will be pissed off by this, but Microsoft are not the type of company to relegate themselves solely to the enterprise. Whilst what Microsoft is doing will not please everyone, as a company, it is something they have to do in order to stay relevant. People will adapt. As always, it takes time. Windows 8 may turn into the next Vista, but I don't think Microsoft will mind, because that will still be hundreds of millions of PC/device sales, and a massive leverage for their ecosystem.


By TakinYourPoints on 10/21/2012 12:53:48 AM , Rating: 2
I agree that this is a "trojan horse" method of getting their desktop OS, which will sell well no matter what, into tablets.

The iPad is the only reason why this is all happening.

Microsoft watched Apple singlehandedly kill netbooks and help flatten traditional PC sales (the Mac excluded since MBP sales continue to grow). That scared the daylights out of a company whose business still depends primarily on desktop Windows and Office. If the iPad becomes the lingua franca of computing, Microsoft is relegated to a sideshow.

And to be totally clear, obviously this wouldn't replace the desktop/workstation segment. Even Steve Jobs in his whole "post PC world" thing said something to the effect of "you'll always need a truck" when referring to desktops and laptops.

But replace the need to have a desktop or laptop for a large number of users? Quite possibly. At the very least it would reduce the need for multiple computers in a household, and this move is Microsoft trying to make sure they have their foot in these sorts of devices. They may not be sticking the execution in terms of clearly segmenting desktops and tablets, but as per usual they'll iterate until they get it right.


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