Microsoft Earnings: Business Sales Boom (But Netbooks Go Bust)
Apr. 29th, 2011 by The VAR Guy
First, the good news for Microsoft and its channel partners: Corporations continue to spend heavily on Microsoft software. That’s great for VARs. But a bit of trouble could be brewing in the Windows sector, especially as cloud computing and tablet computing continue to take hold. There are even signs that the netbook boom has gone bust. Here’s why.
Microsoft’s Q3 revenue, announced yesterday, was a record $16.43 billion, up 13 percent from Q3 last year. And net income was a hefty $5.23 billion,up 31 percent from Q32 last year. Impressive. But consider this statement from Microsoft:
“Windows 7 remains the fastest selling operating system in history with 350 million licenses sold. Revenue for the segment was down 4% in the third quarter, in line with the PC trends, excluding prior year launch impact.”
Hmmm… Microsoft’s Windows spin sounds like a politician: “Things are great, but sales are down.” Now, investors are reacting: Microsoft shares dipped about 4 percent this morning, following last night’s earnings announcement.
Why did Windows 7 sales dip? Perhaps the first, big, initial wave of Windows 7 upgrades has ended. But there are two other factors at hand:
- Apple’s iPad is a runaway hit with consumers.
- iPad sales are chipping away at netbook, low-end notebook and perhaps even some desktop PC sales in the consumer market, The VAR Guy believes.
For the first time in 20 years, Apple’s quarterly profits exceeded Microsoft’s quarterly profits, notes Bloomberg. Among the other details Bloomberg pinpointed:
- Revenue in Microsoft’s Windows division was $4.45 billion; Wall Street had expected $4.6 billion.
- Consumer PC shipments dropped 8 percent in the quarter.
- Netbooks plunged 40 percent.
The Bigger Picture
Let’s not press the panic button. Microsoft’s business sales — the area most critical to channel partners — remain very strong.
Microsoft said Server & Tools revenue grew 11% year-over-year, the fourth consecutive quarter of double-digit growth. Strong business adoption of Windows Server 2008 R2, SQL Server 2008 R2, and System Center are driving record revenue and margin expansion, Microsoft added.
And if you read closely enough, you’ll notice that Microsoft COO Kevin Turner is starting to tout Office 365 — the forthcoming cloud successor to Business Productivity Online Suite. The VAR Guy’s best guess: Office 365 will launch within three months. Technology companies such as Quest Software have already started assisting VARs and MSPs with Office 365 migration guidance.
How many channel partners will jump on the Office 365 bandwagon? The VAR Guy doesn’t know the answer. But in the meantime, corporate demand for Microsoft’s server software is a healthy trend for Microsoft’s channel partners.
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What a nice way to go bust. Making $ 21 billion in net income a year. .
Ralph: Yes indeed, Microsoft net income remains massive. But the company’s stock hasn’t moved in 10 years. In fact, shares dipped 4 or 5 percent after the earnings announcement. The dip in Windows 7 sales concerns investors…
-TVG
Why is there a discrepancy between the number of Windows licences shipped and the number of PCs shipped? Namely Microsoft is claiming a figure of 350 million Windows Seven licences shipped over the last 18 months, but about that number of PCs ships in a single year. So are one third of PCs not shipping with Windows any more?
There’s another reason for stockholders being concerned.
It seems confirmed that Windows Phone 7 sales are as bad as – or even worse – than predicted. Between 670 000 and 1 600 000 units in 6 months whilst Samsung sells 10 mill Galaxy S in 3 months is not good news for MSFT.
Are Microsoft hedging by getting RIM to integrate Bing at OS level or are they just diversifying?
Netbooks are virtually a dead market and Msft wanted to kill it. Intel wanted higher hardware spec and got it. Trouble is that the netbooks are replaced by pads thus the market was played into the hands of Apple and Linux (Android/WebOS/MeeGO) on top of Arm/Cortex/Tegra.
Microsoft remains without a viable alternative wrt pads and WP7 simply doesn’t trigger any buzz in the markets.
Being retorical:
How many articles in the general IT press – about high quality apps for WP7 – where the WP7 apps are deemed better than iOS/Android did you read last month? I frequently read stats illustrating growth of ecosystem (apps), but hardly any articles about those apps.
I can frequently read predictions (from e.g. Gardner) about the future success of WP 7 (no mention of pads), but there are hardly any visible signs of that on the ground.
No reason to believe that MSFT will have to toss in the towel, but it certainly does not look like the shareholders will benefit from WP7 anytime soon.
Nokia? Well….
As stated before, salespersons in the big electronics warehouses states there’s just no interest for Nokia (same situation as WP7). Nokia is just not on the coolwall.
How will they make two uncools into one cool?
Lawrence@3: The VAR Guy doesn’t have a clear answer that explains your math. But the most important figure is 4 percent… that’s how much Windows 7 sales fell last quarter. Not good…
Jack@4: Your analysis of the Windows Phone 7 market is DEAD ON. Microsoft TV ads now promote Office and XBox integration with Windows Phone 7. Not a bad idea… but where are the Microsoft promotions for third-party Windows Phone 7 apps? If they exist The VAR Guy hasn’t seen them.
-TVG
The reason why the stock has not moved is that the demand for the stock is fine, but the insiders have been selling to help with charitable concerns. Imagine if Bill Gates and all the top Executives did not form foundations, the stock would be at $50 to $70 a share. They are getting less for their shares and less for charity by selling. In addition, they are trying to escape the estate tax, however all foundations and estates may have to pay a new tax if it was created on all existing foundations and estates to help pay the deficit.
@ Petrillo:
Short supply normally generates morer competition thus increases the value. On the other hand: Unless major stockholders put their ownership up for sale it’s unlikely that Microsoft are shuffled in to play.
But it doesn’t matter really – investing 1 mill usd in Apple or HTC would have generated more profit for years… (HTC since Android).
Ralph,
The VAR Guy appreciates your note but respectfully disagrees with your thesis. Microsoft’s stock would rise — regardless of insider sales — if Wall Street perceived the company to be in growth mode.
-TVG
Var Guy, IF supply of stock sold decreases , and buying remains constantly strong, price goes up. Last five years supply of stock sold was huge that is why stock drifted down. Most insiders followed Bill gates in selling. Still the stock is moving up, paying a dividend. That is why I stick to what I stated, if they had not sold their stock earlier, the stock would be much higher and they would of been able to give even more to charity. For when the supply os stock to sell hits the market it goes sideways or lower. Microsoft is generating huge cash flow, and is doing a fine job.