“We feel great,” Microsoft’s GM of investor relations, Bill Koefoed told analysts several times during their quarterly conference call this morning Australian time. But feelings can be delusional.
Microsoft’s quarterly figures are, overall, respectable. Third-quarter revenue was $16.43 billion, up 13% year-on-year. Earnings per share was $0.61. Cash reserves have risen to $50 billion.
“We delivered strong financial results despite a mixed PC environment, which demonstrates the strength and breadth of our businesses,” said chief financial officer Peter Klein in a media release.
True enough. While netbook sales have plummeted in favour of tablets, taking Windows licence sales with it, businesses are in the early stages of a technology refresh cycle. Microsoft says 75% of PCs are still running earlier versions of Windows, so there’s plenty of Windows 7 revenue to come. Office 2010 is raking in the cash, and Xbox sales have been good, with continued interest in the gesture-reading Kinect device.
But as I explained last quarter, the longer-term challenge for Microsoft is how it moves into the world of mobile devices and cloud-based services. It’s not just about repurposing your product line as cloud. The problem, as I said, is the vision thing. And that’s precisely where Microsoft just doesn’t rate when compared with Apple and Google.
Revenue for Microsoft’s Online Services Division (OSD) grew 14% this quarter. Advertising revenue grew 17%. US market share of their Bing search engine continued to grow, ending the quarter at 13.9%.
“We feel great about the pace of our innovation and customer satisfaction with our differentiated approach to search,” Koefoed said. “However the expected monetisation of the combined Yahoo! and Bing search marketplace in the US and Canada is taking longer than planned, and revenue per share remains below our expectation.” International expansion has been delayed to focus on the US and Canada.
Microsoft’s online services have now clocked up 21 consecutive loss-making quarters. This quarter’s $726 million down the tube is the second-highest on record.
Just like last quarter, Microsoft chose not to mention Windows Phone 7’s drab sales figures. On Microsoft’s new billion-dollar partnership with Nokia, nothing was said other than both parties are spending money and they’ll increase the pace of innovation. Somehow.
Yep, it’s the vision thing. Microsoft is looking tired. Early reports from The Guardian, CNET, Business Insider and many others are pointing to one highly symbolic fact: Microsoft’s revenue and profits are now eclipsed by Apple.
As Wired put it, “Apple, quite simply, is the hottest company on the planet, with breakthrough mobile products like the iPhone and iPad, as well as its revered line of Mac desktop computers and laptops. Microsoft, by contrast, is seen as a plodding, hide-bound behemoth, struggling to keep pace as the locus of computing moves off the desktop and into the mobile space and ‘the cloud’.”
It’s not that Microsoft is going broke any time soon. But it’s clear that analysts and investors expect more. As I file this story, the share price is down 1.42% in after-hours trading.
“I’m pleased with our healthy financial results for the quarter,” Klein told analysts. “As we look forward into the next fiscal year, our robust product portfolio and ongoing focus in cost management will enable us to continue to deliver shareholder value.”
Inspiring stuff, that.