Microsoft Business Software Sales Up, Windows Weak

Microsoft’s results for its second quarter 2012 offered little in the realm of the unexpected: Xbox 360 and Kinect hands-free controllers continued to sell at a steady clip, as did business software, while Windows revenue dipped on softening PC sales. All told, quarterly revenue topped $20.89 billion, a year-over-year increase of 5 percent, with net income of $6.62 billion.

In a Jan. 19 statement released ahead of its quarterly earnings call, Microsoft reported that some 18 million Kinect sensors have been sold to date, firmly establishing the device which will soon spread beyond the gaming realm to Windows as a solid hit. Office 2010 has managed to sell some 200 million licenses in the 18 months since its launch, the company added, while Windows 8 licenses topped 525 million sold.  

Microsoft has also been pushing several cloud-based productivity initiatives, including Office 365. "Today, more than 100,000 businesses have made the commitment to our online services," Peter Klein, Microsoft s chief financial officer, told media and analysts listening on the call.

However, those cloud initiatives have yet to generate revenue on the scale of Microsoft’s traditional software such as Windows and Office. After Office 365, Windows Azure is Microsoft’s cloud property with the most penetration among customers, according to company executives.

Microsoft’s Server and Tools business also increased 11 percent year-over-year, thanks to revenue growth in the Windows Server and SQL Server premium-edition segments. System Center revenue growth increased 20 percent.

Despite the growth in many divisions, Windows and Windows Live division revenue dipped 6 percent from the prior period to $4.74 billion. Perhaps predictably, Windows sales in emerging markets have grown faster than those in developing markets, according to Microsoft executives on the call.

PC sales have softened in recent months, a situation reportedly exacerbated by flooding in Thailand, which curbed the global supply of hard drives. In 2012, manufacturers are hoping consumers will gravitate toward the various models of ultrabooks–very thin and light notebooks with premium hardware specs–demonstrated at this January’s Consumer Electronics Show (CES) in Las Vegas.

The softness in PC sales, however, is apparently asymmetrical. Bill Koefoed, Microsoft’s general manager of investor relations, told media and analysts on the call that netbooks had declined to around 2 percent of the overall PC market in the past year, influencing the segment s overall numbers. "Consumer PCs grew aside from that," he said. Business PC sales have also proven somewhat more robust than their consumer counterparts.  

At CES, Microsoft CEO Steve Ballmer also demonstrated many of Microsoft’s initiatives for the coming year, including a renewed push for Windows Phone and Windows 8. Microsoft is developing the latter to happily exist on both traditional PCs and tablets, which will (in theory) allow it to not only maintain Windows traditional dominance on laptops and desktops, but also challenge Apple’s iPad in the realm of portable touch-screens.

The Windows 8 beta is expected to launch in February, something Microsoft reconfirmed on the earnings call.

To read the original eWeek article, click here: Microsoft’s Business Software, Kinect Help Drive Quarter