Microsoft reports big sales on Windows 7, Xbox 360, Office 2010
Microsoft posted a record in terms of first-quarter revenue, reeling in $16.2 billion. It also reported a 51% increase in profit which beat analysts’ predictions. On the other hand, one can’t but notice that it’s lack of a smartphone means that Apple’s $20 billion quarter bested Microsoft, record and all.
Beyond all the consumer hype enterprises still remain the company’s most profitable customers.
Net income rose to $5.41 billion, or 62 cents a share, from $3.57 billion, or 40 cents, a year earlier. Analysts were expecting an average of 55 cents a share, reports Bloomberg.
The $16.2 billion represents increased sales in all the markets that make the company somewhat cool again. Windows 7 sales are through the roof. The company booked $4.8 billion in revenue for Windows 7 and Windows Live, compared to about $2.9 billion for the year-ago period. PC OEM revenue accounts for 75% and that increased by $1.8 billion or 93%, thanks to demand for Windows 7. Keep in mind that the total revenues includes $1.5 billion of deferred Windows 7 revenue, from PC makers and consumers who bought Vista last year, with the promise that they could upgrade to Windows 7 this year at minimal or no cost.
Also interesting, Microsoft is lumping Windows Live into this Windows 7 line of business. It makes money on selling ads to Windows Live users. This a way to hide how well, or not, Microsoft is doing with its freebie cloud competitor to Google Apps. Bing remains a trouble spot. While the company bragged about progress made on market share, the unit lost $560 million, compared to $477 million a year ago. Microsoft has spent $74 million on it’s partnership with Yahoo!
Microsoft said it spent an additional $22 million on advertising for Windows 7/Windows Live this quarter. I can believe it. A person can’t watch an evening’s worth of television without running into a couple Windows 7 commercials on any channel.
Xbox 360 sales are also through the roof, and it’s time for me to eat some crow. I didn’t think Microsoft would ever make a go of its game console. I thought it was squandering money and attention that could have been used to better support bread-and-butter corporate customers. The console was notoriously expensive to research and develop, it seemed far behind the likes of the Nintendo and the Wii and at one point, it suffered from a defect that caused Microsoft headaches and about a $1 billion in warranty payments. Executives in the unit were shown the door.
Not anymore. The Halo franchise, Xbox Live and the upcoming Kinect interface has made Xbox hot — and with a that it maybe winning back the hearts of a young 18-24 segment that Microsoft badly needs. Those young adults go into the workforce liking Microsoft products — not cursing its name.
The Entertainment Division revenue increased 27% to about $1.8 billion and profitability increased 47% to 382 million. Microsoft shipped 2.8 million Xbox 360 consoles during the first quarter of fiscal year 2011, compared with 2.1 million Xbox 360 consoles during the first quarter of fiscal year 2010. Halo:Reach launched in September 2010 and has already generated about $350 million in revenue. Well done, Microsoft.
As for enterprises — the company’s main source of revenue? These folks are also taking the bait and buying Office 2010. Revenue for the Business Division is up 14% to about $5.1 billion. This is among the most profitable units, as Microsoft dropped about $3.4 billion of that revenue the bottom line. Microsoft Dynamics is also in this unit but only accounted for a 4% increase.
How much enterprise customers are buying Windows Server is harder to tell. It’s business unit saw a 12% growth in revenue, up to about $4 billion, but Microsoft lumps a a lot of products and its services offering into this unit. It includes sales of Windows Server, Microsoft SQL Server, Windows Azure and other cloud and server offerings, and Windows Embedded device platforms — but it also reflects sales of the dreaded CAL licenses.
Microsoft had given up on giving guidance when the economy crashed on 2009, but is dipping its toes back in. It said it “expects operating expenses guidance of $26.9 billion to $27.3 billion for the full year ending June 30, 2011.”
Let’s compare this to Apple’s record $20 billion, mostly on sales of the iPhone. Microsoft is gaining cache again with consumers. The launch of Windows Phone 7 in November could help it, or really hurt it. But if it perseveres with Windows Phone the way it did with Xbox, Microsoft might still surprise us all.
