Revenue for the quarter (ending 30 June 2011) was up 8% to $17.4bn, producing net income that was an impressive 30% up at $5.8bn. So far so good but the divisional results were more varied.
Sales at Microsoft Business Division were up 7% to $5.8bn due mainly to Office 2010 flying out of the door (the fastest selling Office product in history according to Microsoft, with over 100m sold). The headline figures are good but there are questions over some of the underlying factors.
Office is doing well in the corporate environment but is falling back in the consumer market (8% or $93m down in Q4 11 compared to Q4 10), impacted by a decline in PC sales in developed markets) which is concerning given the importance of this volume market for Microsoft as a whole and in its battles with Google and Apple. Also, Office products now account for over 90% of MBS revenue and this figure has been creeping up. The remaining 10% comes almost entirely from the Dynamics set of ERP and CRM products. Some of the difference will be due to the effect of the release of Office 2010 and the proportion may drop back a little but Dynamics is the poor relation to Office despite a 19% rise in revenue during Q4. In fact the only Dynamics product referred to during the results presentation was the CRM suite, which added 300,000 new seats during the quarter.
Revenue within the Windows and Windows Live Division was down by 1% to $4.74bn for the quarter (minus 2% for the FY). Windows is still a fundamental part of the Microsoft success story so any changes here are noteworthy. Windows is ultra sensitive to PC sales but the dynamics around PC sales tell an interesting story.
Overall the worldwide market for PCs sales rose 1% to 3% in Q4 according to Microsoft, but within that that sales of PCs to businesses grew approximately 8% while sales to consumers declined approximately 2%. The consumer decline includes a 41% decline in the sales of netbooks. Furthermore, Windows revenue took a hit due to increased sales into emerging markets, where average selling prices are lower compared to developed markets.
What can we draw from this? That consumers are shifting from PCs to tablets (and that the netbook is all but dead) which bodes well for Apple and friends but should worry Microsoft. Notably, there was no mention of tablets during the Microsoft results presentation. Assuming that the “bring your own technology” trend that TechMarketView has identified continues, (see The rise of BYO) the outlook will only get bleaker for Microsoft as consumers turn from its offerings to those of competitors. Another observation is that the mature developed markets are declining and if this continues Microsoft’s revenue dynamics will be significantly effected (and that is leaving aside the wider geographic economic implications).
The Server and Tools division was up 12% to $4.64bn due largely to growth in Windows Server Premium and SQL Server Premium. We would expect growth in this division due to the cloud effect but were surprised at the lack of reference to Hyper-V given that virtualization technology, which is a core part of cloud infrastructure, is outpacing other technologies as VMware can testify (see VMware soars on the cloud).
Online services is still loss-making despite a 17% increase in revenue (attributable to search revenue) Revenue for the division was $662m but losses widened to $728m from $688m. The Entertainment and Devices Division saw a 30% lift in revenues thanks to Kinext and Xbox Live sales, to deliver revenue of $1.49bn. Microsoft did not refer to smartphone dynamics but did highlight the Windows Phone Mango that is due in the autumn 2011 and the Nokia alliance, although with Nokia struggling (see Nokia slumps again) that is not necessarily positive.
For the full year revenue was $69.9bn (up 12% yoy), and net income was $23.2bn (up 23% yoy). MBS grew 16%, Server and Tools was 11% up, Windows and Windows Live was down 2%, Online Services was 15% up, and Entertainment and Devices was 45% up over the year.
While Microsoft produced a good set of results but there were some concerning items that took a little of the shine off them. The company is faring better in the business area but with consumer technology continuing to drive into the business, it needs to redress this trend.