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October 24, 2011

Microsoft Empire Bouncing Back

Finally there seems to be  some Good news for Microsoft! Online operations only lost $494 million this quarter.

Microsoft reported another strong if unspectacular quarter, with revenue of $17.37 billion (ahead of expectations of $17.26 billion) and EPS exactly in line with targets at $0.68.

On the earnings call, the company said that Office is pulling through other products,particularly Lync (the company's corporate IM and messaging product), which was up 25% from last year. 

Microsoft also said that business PC sales were pretty good, with revenue up 5%. Consumer sales were flat, but that's mostly due to netbooks disappearing (or being eaten by the iPad). If you ignore netbooks, sales of "traditional" PCs were up about 14%.
Also, Microsoft has decided that Skype will be counted in the Entertainment & Devices segment, alongside Xbox and Windows Phone, suggesting that it's going to be integrated into those products first.
And in a welcome reversal from recent quarters, the Online division (Bing and MSN) actually CUT its losses from last year, to only $494 million during the quarter (down from $558 million last year). At least it's moving in the right direction now.

Here's how the business did against expectations:

·         Revenue: $17.37B vs. $17.26B expected

·         EPS: $0.68 vs. $0.68

·         Windows: $4.87B revenue (+2% from last year) vs. $5.0B

·         Business Division (mostly Office): $5.62B (+8% organic*) vs. $5.4B

·         Server & Tools: $4.25B (+10%) vs $4.3B

·         Entertainment & Devices (Xbox): $1.96B (+9%) vs. $1.9B

·         Online (Bing & MSN): $625m (+19%) vs. $610m

Unearned revenue: $15.67B vs. $15.7B. This is an important metric because it shows how well Microsoft is doing selling long-term contracts to big businesses.

*Microsoft moved the Forefront security products from Server & Tools to the Business Division, adding about $100 million in revenue. The 8% growth doesn't count that revenue