Life without Windows would amount to solitary confinement in a padded cell for Microsoft
The world's leading software company delivered better-than-expected quarterly results last night, but only because its latest operating system carried the company on its back.
Third-quarter revenue rose by 6% to hit a record $14.5 billion. Net income soared by 35% to $4.01 billion, but control your drooling over the 28% net profit margins. Mr. Softy has always been able to deliver a serious chunk of its revenue to the bottom line. Earnings of $0.45 a share easily beat Wall Street's $0.42 target. The report was enough to briefly send shares to new 52-week highs this morning, before they fell south.
"Windows 7 continues to be a growth engine, but we also saw strong growth in other areas, like Bing search, Xbox LIVE, and our emerging cloud services," CFO Peter Klein notes in yesterday's release, but he's being modest about the company's new operating system.
Windows revenue soared by 28% during the period. In fact, the improvement in Windows-related revenue of $967 million is more than the $855 million in consolidated improvement on the top line. In other words, revenue would have taken a step back in a Windows-free world.
The rest of Microsoft was a mixed bag. The divisions led by server software and Xbox were generally flattish. The company's online arm rose nicely, but it bears pointing out that Microsoft continues to post operating deficits there. Bing is a hit, but operating losses for Microsoft's online division are actually widening.
The real sinker is Microsoft's business division. That should improve nicely once Microsoft releases its latest Office installment, but will it? Upgrading from Vista to Windows 7 -- or encouraging leapfroggers to go from XP to Windows 7 -- was an easy sell. But why will folks need the new Office suite? Older versions are perfectly fine. There are also a growing number of Web-based alternatives for free or nearly free. Why pay up for Office, when you can get Google
The better bet is that Windows 7 continues to be the gravy train. When PC chip rivals Intel
The bigger question may be what Microsoft can do for an encore as cloud computing and open-source alternatives nibble at the giant. With $39.7 billion in cash and investments in the bank, Microsoft has the time and the means to figure it out.
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