Microsoft earnings insights: On-premises Office still has a lot of life left

Both cloud and on-premises versions of its Office products were the star in Microsoft's first fiscal 2012 quarter results.
Written by Mary Jo Foley, Senior Contributing Editor

As they were last quarter, Office products were a key contributor to Microsoft's earnings yet again this time around.

During Microsoft's analyst call about its first fiscal 2012 quarter results, the Softies made some noteworthy points about the interrelationship between Office on-premises and Office in the cloud  --as well as about expectations by more than a few industry watchers that non-cloud versions of communications and productivity products are on their way out.

Microsoft just beat the Street's predictions on October 20, reporting net income of $5.74 billion, or 68 cents a share for Q1 FY2012. Non-GAAP earnings were 68 cents a share on a revenue of $17.37 billion, up 7 percent from the same period a year ago.

The Microsoft Business Division (MBD) led all divisions in terms of contributions to the company's revenue total, at $5.62 billion. (Windows was at $4.87 billion and Server and Tools brought in $4.25 billion for the quarter.) Ninety percent of MBD revenues come from Office products, with the other 10 percent from the Dynamics line. MBD revenues were up primarily due to sales of the 2010 Office system -- meaning the Office client, Exchange Server, SharePoint Server and Lync Server, officials said.

Business revenues for the division were up $326 million, or 8 percent, "primarily reflecting growth in multi-year volume licensing revenue, licensing of the 2010 Microsoft Office system to transactional business customers" (along with strong Dynamics revenue growth), according to Microsoft's latest 10-Q. Unlike the case with Windows, where consumer growth was tepid for the quarter, consumer revenue in MBD was up $75 million, or 7%, due mainly to strong sales of the 2010 Microsoft Office system, the 10-Q stated.

(Microsoft officials said in July 2011 the company had sold 100 million copies of Office 2010 and are not providing any updated figures at this time.)

Microsoft isn't releasing separate sales data for the recently released Office 365 bundle of Microsoft-hosted Exchange Online, SharePoint Online and Lync Online. But officials did say Office 365 is paving way for increased sales of Lync, SharePoint, & Exchange by customers of all sizes.

I'm not quite clear if this means that customers going with Office 365 are subsequently buying more on-premises versions of the products in the suite (Exchange Server, SharePoint Server, Lync Server) -- or vice versa. Or maybe both -- a kind of virtuous circle?

In any case, the implication is that sales of the Office cloud products and the Office on-premises products are reinforcing one another. And that's an interesting trend, especially given the doubts by many industry watchers that users still wanted on-premises versions of products like Office, Exchange, SharePoint and Lync, and not simply cloud-only variants that Google provides.

Editorial standards