Today, after the closing bell, Microsoft revealed what might be the closest-watched quarterly results in 11 years. Fiscal third quarter, like the one in 2002, marks a time of record-low PC shipments, with blame falling on the newest operating system. In recent weeks, every idiot arm-chair pundit imaginable has taken to the web to proclaim Windows 8 a failure and prophesying Microsoft’s doom. Not so fast. This company is still a money machine.
For fiscal Q3, ended March 31, Microsoft revenue reached $20.49 billion. Operating income: $7.61 billion and net income was $6.06 billion, or 72 cents a share.
Average analyst consensus was $20.56 billion revenue and 68 cents earnings per share, for the quarter. Revenue estimates ranged from $19.57 billion to $21.65 billion, with estimated year-over-year growth of 18.1 percent. Microsoft missed revenue consensus but exceed EPS forecast.
Several factors mitigated results: Office and Windows pre-sale and upgrade offers and European Commission fine.
“The bold bets we made on cloud services are paying off as people increasingly choose Microsoft services including Office 365, Windows Azure, Xbox Live, and Skype” CEO Steve Ballmer, says. “While there is still work to do, we are optimistic that the bets we’ve made on Windows devices position us well for the long-term”.
Windows 8 Dog and Pony Show
Microsoft’s big problem is declining PC shipments — during calendar first quarter (same as fiscal Q3) bad enough to rank as weakest since IDC started tabulating numbers in 1994. Many analysts and computer market watchers anticipated that Windows 8 would lift sagging shipments, which five months later are worse.
“At this point, unfortunately, it seems clear that the Windows 8 launch not only failed to provide a positive boost to the PC market, but appears to have slowed the market”, Bob O’Donnell, IDC vice president, claims. O’Donnell joins a chorus of Windows 8 blamers, offering a simply unfair and inaccurate assessment. Like today, PC shipments collapsed ahead of Windows XP’s release in 2001 and stayed slow for at least another year. As I explained three days ago, the market similarities are surprisingly close, including global economic malaise.
Many pundits look at smartphones and tablets as the PC’s demise, and Windows with it. Consumers shift spending away from personal computers to these devices, which is the evidence. In 2001-02, the phenomenon was similar, but the devices different — big-screen TVs and MP3 players. I wouldn’t write off the PC just yet.
Something else: Apple, which had been immune to Windows PC sales ills, is afflicted, too. According to IDC, U.S. Mac shipments fell 7.5 percent in calendar first quarter. If Windows 8 is to blame, why is Apple down, too? The point: The market dynamics are complex. The economy. Sales shifting to smartphones and tablets. PC saturation. Suffice to say that Windows 8 didn’t revive PC shipments, which according to IDC fell for 10 consecutive quarters but one — calendar Q3 2011. That’s quite different from being the cause.
Microsoft bet big on touch to compete with these other devices. Demand for traditional PCs is weak, which makes sense given it’s a mature product category. Touchscreen models, whether true tablet or hybrids, offer something different, but not necessarily more enough. They compete with media tablets like Apple’s iPad that offer similar top-line functionality for hundreds of dollars less. For many consumers, iPad, or even smaller tablets, is good enough. So on a touchscreen-to-touchscreen comparison, media slates win, and that phenomenon has little to do with Windows 8.
“The majority of consumers remain unwilling to pay the price premium for touchscreen capabilities on PCs at this stage”, Isabelle Durand, Gartner principal research analyst, says. “But, even so, touchscreens and Windows 8 will represent key opportunities for PC manufacturers in the second half of 2013”. The personal computer will be radically different, and even unrecognizable, in three years, I predict.
Looking at the global numbers, IDC puts calendar first quarter shipments down 13.9 percent, while Gartner is a bit more optimistic (-11.2 percent). IDC and Gartner estimate U.S. PC shipment declines of 12.7 percent and 9.6 percent, respectively.
Something else lost in all the punditry: Microsoft actually encouraged existing Windows customers not to buy new PCs. Promotional pricing make the new version lower than any of its predecessors, as I explained answering in January question “Why are Windows 8 sales so good when PC shipments are so bad?” So the real measure of Windows 8’s success or failure is actual license sales, not PC shipments.
MORE TO COME