Microsoft revenue grows despite PC market woes

Microsoft has increased its revenues owing to a strong performance in its business and server divisions, but it struggled with Windows revenues due to a weakening in the consumer PC market
Written by Ben Woods, Contributor

Strong performance in Microsoft's business and server and tools divisions has helped offset declines in Windows and PC revenues in the company's second fiscal quarter of 2012.

Microsoft Australia HQ

Microsoft saw strong growth in its business and server divisions in its second quarter, but woes in the consumer PC market affected revenue from Windows. Image credit: Luke Hopewell/ZDNet Australia

The company's revenue for the period — 31 September to 31 December 2011 — was $20.9bn (£13.5bn), up from $19.9bn during the same period in 2010, five percent up. However, its traditionally strong PC and Windows revenues took a knock due to a combination of factors.

"In the PC market, it appears that the impact of the hard-drive supply chain constraints were not limited to a specific region or OEM type," Bill Koefoed, general manager of investor relations at Microsoft, said in an investor conference call. "The decline of netbooks negatively impacted consumer PCs which were down six percent. Netbooks, which a year ago represented about eight percent of the PC market, now represents only two percent."

However, excluding the declining netbook market, consumer PCs grew two percent, Koefoed said. Microsoft estimated that the total decline of the PC market was between two and four percent.

The company also reported a six-percent decline in revenue from Windows and Windows Live. It said this was because of the 'softness' of the consumer PC market and the growth in emerging markets.

PC outlook

Peter Klein, chief financial officer at Microsoft, said the difficulties in the PC and Windows market will not clear overnight, continuing at least into the next quarter.

PC growth in emerging markets will outpace developed markets, and business PC growth will outpace consumer PC growth.
– Peter Klein, Microsoft

"We expect revenue to continue to be impacted by market dynamics similar to the past several quarters. PC growth in emerging markets will outpace developed markets, and business PC growth will outpace consumer PC growth," he said. "We also expect the hard-disk drive shortage to continue to challenge the PC market to at least the next quarter."

"Microsoft's financial results certainly highlight the one area of significant exposure Microsoft faces: the Client and Windows Live business," Al Gillen, systems software analyst at IDC, told ZDNet UK. "Of course, that business is highly dependent upon PC sales, which are under considerable competitive pressure from mobile devices. We are seeing the dilution effect from alternative devices forcing an extension of the PC lifecycle, which of course comes back to affect Microsoft's ability to sell new OS licences."

Growth areas

The strongest area of Microsoft's performance came in its server and tools unit, with an 11-percent increase in revenue over 2010, taking it to $4.8bn for the quarter, largely due to strong sales of premium Windows server and SQL server. There was also a 20-percent increase in Service Center revenue.

"We saw broad-based strength across our products. In our data platform business, SQL Server grew low double-digits, outpacing industry growth due to the strength of our premium edition," Koefoed said. "We also saw strong market anticipation for SQL Server 2012 with over 100,000 downloads in the two months since the release candidate was made available."

The company's business division — responsible for products such as Office, SharePoint, Exchange, Lync and Dynamics CRM — grew revenue three percent to $6.28bn. Little was said about the performance of cloud or other online services, with a 10-percent growth in its online services division contributed to in part by an increase in online advertising revenue driven by Bing Search.

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