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Brier Dudley's blog

Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

October 28, 2010 at 1:46 PM

Microsoft earnings tidbits: “Halo” effect, no iPad effect yet

A few tidbits buried in Microsoft’s blowout earnings report today ought to reassure the Puget Sound region, which has been a little on edge with all the national stories lately about how Microsoft’s on the ropes.

Apparently the iPad hasn’t yet killed the franchise.

Windows sales grew 66 percent — to $4.78 billion — and operating income grew 124 percent — to $3.23 billion — during the quarter. So much for the recession.

Business software sales, including Office, grew 14 percent to $5.13 billion and operating income grew 20 percent, to $3.38 billion.

Yes, Microsoft’s still selling to consumers — and not just the Xbox. Consumer sales of Office and other productivity software grew 26 percent to $216 million.

Microsoft spent $4 billion of its cash buying back stock during the quarter, during which it raised its dividend to 16 cents, from 13 cents. It still ended the quarter with $51 billion in cash and investments.

Xbox 360 platform sales grew 33 percent to $409 million, driven by console sales and “Halo:Reach.”

Microsoft shipped 2.8 million consoles in the quarter, up from 2.1 million during the same period last year. It said it outsold every other console in the U.S. during the last four months, even the Wii.

“Halo: Reach” generated approximately $350 million in sales during the quarter.

Online ad sales grew 13 percent to $473 million. But the company upped its investment in the war on Google, increasing hiring and research spending by 27 percent, or $61 million.

There were no significant acquisitions during the quarter. Microsoft listed zero acquisition expenses, compared with $39 million the year before. Is that a glass half empty or half full for the Seattle startup crowd?

As a counterpoint to this morning’s announcements about Microsoft’s progress building cloud services, the company warned investors that it’s a risky and expensive venture.

This afternoon’s earnings report notes that “the cloud-based computing model presents execution and competitive risks.”

The cautionary note has the only nod to competitive risks from the iPad that Wall Street analysts are so concerned about:

We are transitioning to a computing environment characterized by cloud-based services used with smart client devices. Our competitors are rapidly developing and deploying cloud-based services for consumers and business customers. Pricing and delivery models are evolving. Devices and form factors influence how users access services in the cloud. We are devoting significant resources to develop and deploy our own competing cloud-based software plus services strategies. While we believe our expertise, investments in infrastructure, and the breadth of our cloud-based services provides us with a strong foundation to compete, it is uncertain whether our strategies will attract the users or generate the revenue required to be successful. In addition to software development costs, we are incurring costs to build and maintain infrastructure to support cloud computing services. These costs may reduce the operating margins we have previously achieved. Whether we are successful in this new business model depends on our execution in a number of areas, including:

— Continuing to innovate and bring to market compelling cloud-based experiences that generate increasing traffic and market share;

— Maintaining the utility, compatibility and performance of our cloud-based services on the growing array of computing devices, including smartphones, handheld computers, netbooks, tablets and television set top devices; and

— Continuing to enhance the attractiveness of our cloud platforms to third-party developers.

Comments | Topics: iPad, Microsoft, MSFT


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