Microsoft earnings post-mortem: The cash cows quiver
The headlines on Microsoft's fiscal 2008 third quarter earnings were all over the map this week -- with claims that Microsoft beat expectations, to Microsoft fell far short of the mark. The one consensus, however, was that Windows client and Office, Microsoft's two biggest cash cows, weren't the robust bottom-line contributors that they usually are.
It's a little deceiving comparing the 2007 and 2008 third quarters, as Microsoft launched Windows Vista and Office 2007 in January 2007, making for a strong FY 2007 Q3 for those two products.
Anonymous blogger MSFTextrememakeover captured Windows client's less-than-stellar quarter in a nutshell:
"Again looking quickly, Client sucked. And it seems to be not just the technology guarantee impact but also anemic OEM growth. The .ppt brags about the same 140M Vista licenses sold that we've been hearing about for a while now. So clearly there's been no acceleration wrt installed base upgrades either. Surprise! Not. MBD (Microsoft Business Division) was also weak. I haven't delved further to figure out why. Server put in a strong showing as per usual. Kudos to that group at least. And E&D managed to eke out a paper profit (as long as you ignore intra-group transfers and the convenient "Corporate-level activity" bucket)."
Some are speculating that Apple's gains are directly translatable into Microsoft's weak Windows' sales. I'm not buying that one. While Microsoft is spending a lot more dollars and cycles worrying about Apple's halo-effect successes in the consumer world, Apple still is a non-factor in the business market -- which is where Microsoft makes the lion's share of its Windows/Office revenues.
I'd be more inclined to agree with MSFTextrememakeover, who speculated that a higher-than-expected XP vs. Vista mix could be one of the culprits for Windows client's poor showing:
"I'm going with IDC and guessing a mix shift back to lower priced/lower margin XP and towards Linux in UMPCs (ultra-mobile PCs) and emerging markets is what is really responsible for the miss - which is even more concerning."
On the Office front, given that a number of market watchers have been impressed with Office 2007/SharePoint Server 2007's strong sales, it's less clear-cut regarding what's dragging that division's sales downward.
I can't help but wonder if the lackluster Windows/Office results also can be attributed to Microsoft brass's complete and crazy obsession with Google (and taking over Yahoo) has resulted in no one minding the Windows store. Kevin Johnson, the head of Microsoft's Platforms & Services division seems to be so laser-focused on the online-ad business these days that he almost seems to have forgotten Microsoft is still in the software business, too.
Microsoft execs' claims about walking away from the Yahoo deal are nothing more than bluster. A protracted hostile takeover bid is just going to distract not just employees in Microsoft's online services business, but company management, too. It's not a pretty picture.