Microsoft’s Q213 results did not set the world alight last night (ditto this point in time last year - see here) but they were OK. The share price moved down 2% in after-hours trading. Actually, that can be considered a minor achievement given the many questions about the company and its prospects. What was disappointing, but not unexpected, was the lack of insight into Surface sales as an indicator of its progress in the all-important mobile market.
Revenue was up 3% YoY to $21.46bn, with a slight fall in net profit from $6.62bn to $6.38bn as the cost of launches (including Window 8, Surface) and related sales and marketing investments made themselves known. There was continued movement to multi year licenses within the Windows, Business, and Server and Tools divisions (double digit growth) which has the effect of reducing upfront revenue.
Windows revenue was up 24% to $5.88bn. When adjusted for net deferral for the Windows Upgrade Offer and the recognition of the previously deferred revenue from Windows 8 pre-sales, the increase was 11%. With 60m Windows 8 licenses sold to date, this was a driver for revenue but the shape of the business is as important an overall number – upgrades, new sales, PC vs. Surface, OEM inventory. There was extra inventory in the channel, although management said it was within bounds. As far as Surface was concerned, the company said demand exceeded supply.
Even though it is key to its success, there is more to Microsoft than Windows. The Server & Tools business delivered a 9% revenue increase to $5.19bn, driven by double-digit growth in SQL Server and System Center. Microsoft Business Division did not do so well, posting a 10% decline to $5.69bn. It was impacted by the Office Upgrade Offer and pre-sales. The launch of Office 2013 is imminent and its impact will be interesting given the pricing model which pushes buyers towards subscriptions in preference to perpetual licenses. Surprisingly, there was no mention of the Dynamics range of ERP and CRM products – CRM is usually a poster child for SaaS adoption. Revenue from Microsoft’s productivity server offerings –including Lync, SharePoint, and Exchange – continued double-digit percentage growth. As far as Online Services Division is concerned, it saw an 11% rise in revenue $869m, with online advertising revenue up 15% due to an increase in revenue per search.
Microsoft is a business of many parts but it is founded on the Windows and Office platforms. If these falter, and if it does not crack the mobile market, the prospects for the rest of the business are at risk. The wait and watching continues.