Microsoft Gets No Kick From Vista - InformationWeek

InformationWeek is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them.Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

IoT
IoT
Mobile // Mobile Applications
Commentary
7/23/2007
09:39 AM
David  DeJean
David DeJean
Commentary
50%
50%

Microsoft Gets No Kick From Vista

Fifty-one billion dollars is a number so big it's hard to get your mind around -- a number-of-galaxies-in-the-sky number, a Halliburton-no-bid-contract number. Still, I'm willing to believe Microsoft took in that much in its just-ended fiscal year. But Microsoft says that huge number was in some way helped by "solid customer acceptance" of Vista? Come on, I wasn't born yesterday.

Fifty-one billion dollars is a number so big it's hard to get your mind around -- a number-of-galaxies-in-the-sky number, a Halliburton-no-bid-contract number. Still, I'm willing to believe Microsoft took in that much in its just-ended fiscal year. But Microsoft says that huge number was in some way helped by "solid customer acceptance" of Vista? Come on, I wasn't born yesterday.That $51.1 billion is gross, of course-- gross income, not net -- and it's a new record for the world's largest software company. Microsoft reported last week that fourth quarter revenue increased 13% year-over-year to $13.4 billion and net income rose 7.3% to $3.0 billion.

So what about annual profits? Well . . . that $51.1 billion is a new record, you got that, right? . . . and, well, profits were up 7% over the same quarter last year.

So why didn't stock market analysts stand up and cheer? Reuters quoted Jane Snorek, a technology analyst for First American Funds: "There were some expectations that with this PC boom we would see some big upside, but I guess not."

That's the problem. The PC market is doing great -- like really, beyond-our-expectations, double-digit great. Worldwide PC shipments in the second quarter of this year increased by 11.7%, according to analyst firm Gartner reports. Income in Microsoft's Client division was up 13% over last year, and profit was up less, at 11%.

Last year, of course, we were holding our breath until we turned blue waiting for Vista to ship. So what effect has Vista had on Microsoft's revenue? Apparently very little. Microsoft's client business isn't leading PC sales -- that "big upside" Snorek hoped for. It's just bobbing along on the rising tide of strong PC sales.

Gartner analyst George Shiffler put it this way last month: "The release of Microsoft Windows Vista operating system at the end of January has, so far, failed to stimulate the market in the way many hoped. Our market data suggest Vista has had very limited impact on PC demand or replacement activity."

The blog MSFTextrememakeover, written by a stock-market guy who thinks Microsoft needs an intervention, quoted the company's CFO, Chris Liddell:

On the all-important Vista issue, it's clear from comments that adoption is behind expectation. Liddell's actual euphemism was something along the lines of "we're broadly happy with Vista adoption". But in the Q&A, he was forced to concede that MSFT took down expectations for next year from 85% Vista/15% XP to just 78% Vista.
Reuters moved a story Friday that provided anecdotal evidence of consumers' reluctance to let go of XP, ranging from decisions by PC makers HP, Dell, Lenovo, and Toshiba to start selling XP machines on their Web sites to Massachusetts Institute of Technology's advice to incoming freshmen to buy PCs loaded with Windows XP.

Another significant data point: Apple is making inroads. According to an IDC report last week, Apple has moved up to tie Gateway for third place in shipments behind HP and Dell. (Apple still isn't in the top five worldwide, and Gartner doesn't rank Apple as high as IDC does, because it calculates rankings differently.)

Right now, clearly, Apple is in the pink. The iPod still rules its market, the iPhone has been a hit, and Mac sales are booming.

And Microsoft? The earnings report doesn't tell a happy story. It's profits for the quarter and the year are being held down by a billion-dollar charge to cover make-goods on the Xbox 360. (Sales of the Xbox are off 60% for the quarter and earnings in the Entertainment and Devices division are off 183%, according to MSFTextrememakeover. The best news anybody could come up with is that the sales shortfall of 400,000 units saved Microsoft significant money, given that the Xbox sells for less than it costs.)

The Online division continues to lag, way behind Google, Yahoo, and the rest of that market. There were bright spots. The Microsoft Business Division did better than expected, and Server and Tools at least outperformed Client.

The Client division, home of the operating system that once drove Microsoft to those cosmic numbers, isn't pulling its weight. That's a big change, and it's being reflected in a big change in the marketplace -- more competition among operating systems, more "solid customer acceptance" of alternatives to Windows (and to the Office suite, another Microsoft cash cow). What changes it will mean at Microsoft is going to be interesting to watch, because it looks like it's time for some.

We welcome your comments on this topic on our social media channels, or [contact us directly] with questions about the site.
Comment  | 
Print  | 
More Insights
Slideshows
10 Top Cloud Computing Startups
Cynthia Harvey, Freelance Journalist, InformationWeek,  8/3/2020
Commentary
Adding Fuel to the MSP vs. In-house IT Debate
Andrew Froehlich, President & Lead Network Architect, West Gate Networks,  8/6/2020
Commentary
How Enterprises Can Adopt Video Game Cloud Strategy
Joao-Pierre S. Ruth, Senior Writer,  7/28/2020
White Papers
Register for InformationWeek Newsletters
Video
Current Issue
Enterprise Automation: Do More with Less
In this IT Trend Report, we highlight the benefits of automation and the various tools as enterprises navigate turbulent times, try to do more with less, keep their operations running, and stay on track with digital modernizations.
Slideshows
Flash Poll