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Microsoft Q2 Profits Down By 3.7%, Windows 8 Sales Slow, Still No Figures for Surface

Anyone hoping that the information supplied at Microsoft’s Q2 earnings announcement last night would answer some of the questions hanging over the Redwood giant are going to be disappointed.

Microsoft Performance

We still don’t know how many Surface tablets it sold, whether Windows 8 is truly lighting up the market or whether or not businesses have bought into Steve Ballmer’s often cited “ re-imagining” of the future.

To be fair, a single financial quarter is far too short a time to answer a couple, let alone all the questions that Microsoft executives must be asking themselves at the moment, but the quarter did point to a number of issues that could become problems.

In terms of figures, it was a mixed bag really with net profits down close to 4% form US$ 6.62 billion to US$ 6.36 billion — and more importantly for investors — from US$ .78 per share to US$ .74 per share. Even still, revenues rose from US$ 21.46 billion to US$ 21.54 or about 3%, but still below city estimates.

Windows 8

While Steve Ballmer said in a statement around the results that the company’s “big, bold ambition to re-imagine Windows,” along with other new products like Surface and Windows Phone 8 is beginning to pay off, the figures showing the new Windows 8 OS lighting up the world just aren't there.

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While Microsoft earlier this month said that it had sold 60 million licenses for Windows 8 so far, the results for this quarter would seem to indicate that, as yet, it really hasn't caught the imagination of the business community.

But as Peter Klein, CFO, pointed out in a conference call after the figures were released — it’s still early days yet. We are also at the tail-end (we hope) of the worst financial crisis since at least the last World War, and sales across all verticals are still sluggish.

That said, while the Windows division reported a growth of 24% in revenues over the quarter to US$ 5.88 billion — 11% if you take out the early orders for Windows 8 — it is still well off the revenue spike that Microsoft experienced when it released Windows 7 three years ago.

Surface

There are also questions over how it is performing in the tablet and smartphone market and there have been reports over the past few weeks that Surface hasn't achieved the levels of sales that Microsoft had hoped for.

If these reports were unfounded, Microsoft should maybe indicate how many Surface tablets it has actually sold and knock this speculation on the head. But again, there are no figures for that here, which will only fuel speculation that sales have been mediocre at best.

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The failure to produce figures will also lead to speculation as to how effective Surface has been in a market that has been dominated by Apple and Android. One of the questions here must be around the wisdom of the initial sales strategy, which saw Microsoft offering Surface in selected Microsoft stores and online in the beginning before making it generally available.

There is also the question as to how many potential buyers, both in the enterprise and privately, are waiting for the release of the Windows 8 Pro version, which is widely touted as being a complete step above the RT version.

This just seems like bad strategy rather than bad technology, and it may be something that comes back to haunt Microsoft later on. But only the next couple of quarters will tell.

Business Unit, PCs

And then there’s more trouble on the horizon, but this time it’s been trouble that has been well flagged by research agencies like Gartner or IDC — consumers continue to move away from PC’s to devices and overall shipments of PC’s fell globally by 3.2% last year. Again, while this reflects a shift towards mobile devices, it also reflects a stagnant world economy where business and home users are holding on to what they have.

Microsoft however appears to still be betting on a healthy PC market. It is currently considering a substantial investment of US$ 2 billion in Dell as it seeks to go private again in a deal that is widely expected to cost more than US$ 20 billion. The thinking here, it seems, is that that with a wider stake in the hardware market, it will open up new avenues for its Windows products, thus keeping its PC interests alive.

 

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