Don't look now, but Microsoft is starting to morph into a three-headed cash cow

Don't look now, but Microsoft is starting to morph into a three-headed cash cow

Summary: Microsoft is on its way to becoming a three-headed cash cow, with the Windows, Business (Office) and Server and Tools units all feeding the Redmondian beast.

SHARE:

Windows and Office traditionally have fueled Microsoft for decades. Critics love to point out that Microsoft is a two-headed cash cow and that the rest of the company's businesses do little to power it.

Microsoft's fiscal 2011, for which the company reported earnings on July 21, may finally put that adage to rest. Microsoft is on its way to becoming a three-headed cash cow, with the Windows, Business (Office) and Server and Tools units all feeding the Redmondian beast. Check out the breakout for FY 11 from Microsoft's earnings slide deck:

(click on the table above to enlarge)

Microsoft revenues for FY 2011, which ended June 30, were $70 billion (as ballparked a few weeks early by CEO Steve Ballmer). Office contributed $22.2 billion, Windows/Windows Live contributed $19 billion, and Server and Tools another $17 billion. Server and Tools is the business unit which is responsible for Windows Server, SQL Server, System Center, Visual Studio and Windows Azure, among other products.

However, as my blogging colleague Larry Dignan quipped this evening, the Server and Tools "head" is rather a skinny one (or let's call it pleasingly plump). While operating income for Office was $14 billion, and Windows was $12 billion, Server and Tools was $6.6 billion.

It's still worth noting that Microsoft is slowly but surely making good on its plans to diversify beyond its two biggest successes. Server and Tools is where the future Microsoft cloud action is centered. And its home to several of Microsoft's current $1 billion+ businesses (System Center and SQL Server are both in this category).

Xbox, by the way, also is one of Microsoft's $1 billion+ businesses already -- and an area of key marketing focus for Microsoft as the company works to polish its image as a "consumer" company. But the Entertainment and Devices division where Xbox lives is still smallish compared to the other units, with $8.9 billion in revenues and $1.3 billion in net income for the past fiscal year.

I'll update this post during and after the earnings call at 5:30 p.m. ET. In the meantime, see "Microsoft rides corporate upgrade cycle, crushes Q4 target" and "Microsoft's online sinkhole: $8.5 billion lost in 9 years" for more on the Q4 numbers.

Update: The word of the day for Microsoft was enterprise. As I noted above, Server and Tools -- which is predominantly enterprise-focused -- is cooking with gas. In Server and Tools, multi-year license revenue grew 12 percent and enterprise services revenue grew 14 percent, officials said. Premium Windows Server and System Center revenues were both up over 20 percent, and SQL Server Premium revenue grew almost 20 percent, officials said.

Other divisions got a big boost from enterprise, too, including the Business Division (where Exchange, Lync, SharePoint and Dynamics live), as well as Windows. Enterprise deployments of Windows 7have increased almost 50 percent since March 2011, Microsoft execs said today.

Windows division revenues were down for both the fourth quarter and the FY 2011 year, as was operating income. Why?  Netbook sales were way off, and consumer Windows sales are slowing. What's not slowing is business sales of Windows. From Microsoft's 8-K (as noted by @sharonpianchan), for Q4 FY 2011 compared to Q4 2010: "We estimate that sales of PCs to businesses grew approximately 8% this quarter and sales of PCs to consumers declined approximately 2%. The decline in consumer PC sales included an approximately 41% decline in the sales of netbooks."

Oh, one more thing: Although Microsoft officials wouldn't say on the call which division gets the credit for monies received from IP licensing for Android, it is, indeed, the Entertainment and Devices unit (where Windows Phone lives).

Topics: Microsoft, CXO, Hardware, Operating Systems, Servers, Software, Windows

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

27 comments
Log in or register to join the discussion
  • RE: Don't look now, but Microsoft is starting to morph into a three-headed cash cow

    Hooray for diversifying! Soon the entertainment division and the mobile division will be bringing in more cash.
    LoverockDavidson
    • It's all a lie

      @LoverockDavidson

      We've been told that companies are dumping Windows Servers for Linux, so Server and Tools can't be $6.6 billion, probally a typo, more like -$6.6 Billion.
      William Pharaoh
      • RE: Don't look now, but Microsoft is starting to morph into a three-headed cash cow

        @William Pharaoh

        I seriously laughed out loud when I read this.
        mattweihl
      • RE: Don't look now, but Microsoft is starting to morph into a three-headed cash cow

        @William Pharaoh

        It's called "each new version of our software needs more servers"....

        Or we jack up license costs year over year to ensure we make profits.

        Notice they only talk $$$, not installed base.

        If you see your installed base shrinking you jack up the prices to make it look the same. And MS is masters at taking your business' money away from you.
        itguy10
      • RE: Don't look now, but Microsoft is starting to morph into a three-headed cash cow

        @William Pharaoh
        We've heard that too many times. And every quarter its the same thing, Microsoft makes a profit and the naysayers are proved wrong.
        LoverockDavidson
      • RE: Don't look now, but Microsoft is starting to morph into a three-headed cash cow

        @itguy10 ... As I've said repeatedly, if you were my IT guy, you'd have been fired a long time ago for gross incompetence in your profession.

        Just today I finished an analysis of my Microsoft Volume Licensing contracts and was able to find ways to SAVE my company money based on the volume we buy. It's a time-consuming process that is overly complex, but taking the time to actually pay attention and learn something yields highly favorable options.
        GoodThings2Life
      • It appears you have an excuse for anything

        @itguy10
        I imagine that once you calm down from your temper tantrum, you post yet another excuse, no matter how lame it comes off.

        But no one can fault you for not trying.
        :|
        Tim Cook
      • RE: Don't look now, but Microsoft is starting to morph into a three-headed cash cow

        @William Pharaoh

        Really? Is it also the "Year of the Linux Desktop"???<br><br>Hahahhahaha! What a tool.
        Lamerz
      • RE: Don't look now, but Microsoft is starting to morph into a three-headed cash cow

        @William Pharaoh

        You are so wrong, they are all bringing back online their old UNIX machines to power their datacenters of the future. :)
        hbull
    • RE: Don't look now, but Microsoft is starting to morph into a three-headed cash cow

      @LoverockDavidson Well, they did grow 45%, and they're decent products, so I wouldn't be surprised.
      CobraA1
  • More like an octopus now. They could have 8 different billion dollar

    product lines this next fiscal year. Thats a big change from the days of having only 2. They could have even more if Windows Phone and Azure take off and/or they top 1B in android licensing revenue. Wouldnt that be something!
    Johnny Vegas
    • Collecting patent fee from Android would be Nth head

      Just kidding. Cannot help laughing how ironic it is the proprietary companies are raking profit from the FOSS fools. Must be karma.
      LBiege
      • It has been fun to watch the FOSS follies

        @LBiege Sun embraces "openness", fails miserably, and ends up getting bought by Oracle.

        The Linux loons continue their in-fighting and destroy what little market share they had.

        Firefox gives the finger to enterprises, only to crawly back with their tail between their legs.

        And Microsoft continues to make money...
        otaddy
      • RE: Don't look now, but Microsoft is starting to morph into a three-headed cash cow

        @otaddy
        It would be funny if Microsoft gets paid for each installation of Chrome Browser and Chrome OS based system sold. Given the fact that Google blindly copies things from others, there must be definitely something that Google might have trespassed. :D. Or Mozilla suing Google regarding Chrome browser, that would be interesting and what would these FOSS advocates here on these forums would say and whom would they support.
        Ram U
  • RE: Don't look now, but Microsoft is starting to morph into a three-headed cash cow

    @Mary Jo - It's also noteworthy to mention that some of the Server & Tools product lines actually drive the sale and adoption of Windows and Business Division products. And, unlike in the past, although the different product lines integrate well, they're not the only products they integrate with (as in, MS makes more interoperable and standards-based products than before)
    fer.paredesb@...
  • RE: Don't look now, but Microsoft is starting to morph into a three-headed cash cow

    You know, I am no fan of Balmer but you have to give the guy credit, he has helped create more profit at MS and done so in a less hostile way than gates ever did!
    slickjim
  • Is Microsoft redefining the Enterprise word?

    Enterprise? What does Microsoft offer for interoperating with Mainframes, Sun or Linux? Last time I looked playing with yourself isn't the definition of Enterprise.
    celerystalk
    • Yup.

      @celerystalk Mainframes increasingly irrelevant compared to Wintel-powered blade-racks.
      MSFTWorshipper
      • RE: Don't look now, but Microsoft is starting to morph into a three-headed cash cow

        @MSFTWorshipper

        They are still the back bone of large enterprises
        the.nameless.drifter
    • RE: Don't look now, but Microsoft is starting to morph into a three-headed cash cow

      @celerystalk
      Can you please define interoperability? Can you show me how Linux, Sun or Mainframe are 100% interoperable with each other. Last time when I checked every system has issues with this. Otherwise there is no need of so many EAI and Interoperability experts and architectures around it.
      Ram U