The software giant from Seattle may have had its feathers ruffled by yesterday’s not-so-brilliant third quarter financial results, but it’s ever onwards and upwards for Microsoft. It hopes.
As Microsoft itself says that the worldwide meltdown is not set to end real soon now, and will extend through the whole of 2009, it faces thorns, thorns before the roses, roses bloom again.
It’s worth looking in some detail at the five business divisions Microsoft reported on.
Its Windows division declined by 16 percent to $3.4 billion, with the company claiming there’s a slowdown in people buying PCs – a pattern that’s familiar to Intel, AMD, and the other snug-as-a-bug-in-a-rug PC players.
Microsoft, incidentally, said dents in its Windows division revenues weren’t affected by booming sales of netbooks – typically it makes less on a netbook than on a fully fledged notebook with bells, hooters, klaxons and eye candy galore. It said that things would have been worse if it wasn’t for netbook sales.
So will Windows 7 save the day and bring Microsoft sales and revenues as people rush to upgrade to the brand new operating system expected sometime between October 2009 and January? Corporations’ wallets are tightly closed, according to Dirk Meyer, CEO of AMD. People, or consumers as the jargon goes, are saving their money rather than spending it. A new shiny PC, unless it’s absolutely essential, isn’t likely to be on the top of the spend, spend list.
Business/Office and Exchange
This unit fell by five percent, and accounted for $4.51 billion of revenues. To some extent this unit trails the PC market, particularly in the corporate sector.
Microsoft said that while its CRM, Office Communications Server, and SharePoint revenue grew by over 20 per cent, its transactional revenue decline by 25 percent, which accounts for the five percent drop.
This division includes Microsoft’s online services and the 14 percent drop is accounted for by a drop in advertising revenues. This is a further reflection of the credit crunch – when corporations and businesses are unsure how the market is growing, like everyone else they defer buying.
But the online services division bled $575 million in the third quarter, showing that it is still under the weather compared to its nemesis, Google. Microsoft said that online advertising fell by 16 percent, with the whole unit turning in a relatively trifling $0.72 billion.
Entertainment and Devices
This unit only declined by five percent compared to the same quarter a year ago. Microsoft is happy with sales of its Xbox 360 – it sold 1.7 million consoles in the quarter, up close to 30 percent.
This unit also, we presume, includes the famous Microsoft Mice. Logitech said its mice sales were squished by the credit crunch earlier this week. Microsoft doesn’t break down individual items in this business sector, but we’d presume its PC peripheral unit hurt quite a bit too.
Server and Tools Business
While the drop in the X86 hardware market had its effect on Microsoft’s transactional business, there were some bright spots for the firm here The revenue growth of seven percent was repeat business from licensing, while the firm said that its System Center revenues grew by double digits, and enterprise services revenue by six percent.
Microsoft’s business model continues to be driven by its Windows, Office and Server divisions. These three divisions are, of course, heavily dependent on X86 hardware – whether it’s servers, notebooks and desktops.
Nevertheless, the dire expectations of the market mavens before the results came out remain unjustified. With banks and huge companies finding themselves up against the wall, it’s clear that Microsoft’s performance is not to be sniffed at. The company is clearly ready to make cuts in personnel when it’s necessary. And even if its online services business is an Achilles’ Heel, it doesn’t have all its eggs in that particular basket case.
Microsoft has got cash in the bank and it’s not going to go away any time soon. The markets thought so too. Microsoft (tick: MSFT) share price rose to $19.70 after the markets closed yesterday.