Microsoft's results for the quarter ending Dec. 31, 2011, were pretty much in line with what industry observers expected. But two items caught my eye, and they both fall in the category of good news for Microsoft and its shareholders.
In a nutshell, Microsoft's reported record sales for the holiday quarter of just under $21 billion. Earnings hit $6.62 billion, down from $6.63 billion the previous year. Sales for the Business division (most prominently Office) were up 2.8 percent from the year-earlier quarter. Server and Tools sales were up a very healthy 11 percent from the year before, and Entertainment (primarily Xbox and Kinect) soared as expected, at 15 percent above the holiday season in 2010.
Everyone expected sales in the Windows & Windows Live division would fall, and they did. Microsoft's Bill Koefoed warned analysts about the decline in new PC sales last week, and it doesn't take a big brain to connect the dots between PC sales and Windows sales. Microsoft blamed the floods in Thailand -- an argument I find facile as it doesn't give enough weight to the massive market changes brought on by the iPad and MacBook Air. Microsoft expects the slump in PC sales due to hard drive shortages to continue for another quarter. We shall see.
Here's the first surprise. Both IDC and Gartner say that PC sales in the fourth quarter of 2011 fell from the last quarter of 2010. If you look at the PC sales numbers from Gartner and back out the number of Apple PCs sold (a number available for only the United States), the number of non-Apple PCs sold in the fourth quarter fell about 2 percent worldwide and a whopping 9.2 percent in the States.
Given that dismal PC sales record, the fact that Windows revenue only fell by 6.2 percent is an encouraging sign. Since the majority of PCs sold in China (and indeed much of Asia) don't ship with Windows pre-installed, and Asia/Pacific is one of the few growth regions for PC sales for several manufacturers, Microsoft's ability to beat the U.S. downturn means it's still shipping Windows with new PCs in much of the rest of the world.The other hopeful sign? Microsoft has finally started to stem the enormous gush of red ink in its Online Services division. Thanks to a 9 percent increase in revenue compared to the last quarter of 2010, Microsoft lost "only" $455 million in its Bing division during the last quarter of 2011. That's its best quarterly result in almost three years.
Back in August, I came to the conclusion that Microsoft was spending about $3 for every incremental new search performed in Bing. Now it looks like the 'Softies may have finally capped their spendthrift ways, while search income is ever so slowly increasing.
That's the good news. The bad news is that Bing lost about $2.4 billion in calendar year 2011, and it's on track to lose perhaps $1.5 billion -- maybe more -- this year. Microsoft's search market share didn't go anywhere in 2011, but if the Redmond can at least keep its expenses curtailed, there might be some light at the end of the tunnel, after watching Microsoft lose frighteningly close to $10 billion on Bing in the past six years.
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