Microsoft's Impressive Quarter Fuelled By Improved Business IT Spending

Great quarter from Microsoft yesterday (see conference call transcript). It was a beat-and-raise quarter, with everywhere you look across the software company's product lines it posted impressive growth. The results were better than I figured Microsoft would put up -- and better than Microsoft expected: it conceded on the on the call that PC growth came in almost 5 points ahead of where it expected -- despite having been convinced some time ago that MSFT would do well on the back of Halo, improved business IT spending, etc.

I remain a Vista skeptic, of course. But that's not the same thing as saying that businesses won't plod along in lockstep buying the thing, even if consumers aren't jumping up and driving adoption the way they did for Windows 95. What's the alternative for business? A wholesale change to Mac? A shift to Linux? Be serious; won't happen.

The sole lowlight, now that even the entertainment business found a way to profits for at least one quarter, was online. While delivering 25% revenue growth, it lost $264-million in the quarter.

The rest of the business is, in effect, subsidizing Microsoft's quest to get 25% of its business tied to advertising over the next few years, and so both the top- and bottom-line figures in this part of the business will be the ones to watch.

I still wish Microsoft would have followed my advice a long time ago and separated the (supposed) growth and the annuity businesses -- because Microsoft is worth more in parts than as a whole -- but it's definitely motoring right now in its legacy business as a beneficiary of an upturn in business IT spending.

Comments

[Tom B:]

"A wholesale change to Mac? A shift to Linux? Be serious; won't happen." Oh, come on. It'll happen. When the DOS-dinosaurs start retiring, Otellini (Intel) ALREADY uses a MacBook Pro at home. Once a person uses a Mac. Dealing with Windows seems more intolerable evry day. I would be curious to get more detail on MSFT's surprising numbers. Could be capitulation-- people don't like Vista, but still feel they need new PC's for back-to-school. Could be "channel-stuffing"-- they've done that before. Could be very transitory for them-- remember, Halo 3 is NOT about to pull that whole failed XBox platform into the black-- too much red ink has been spilled already! And Bungie has "left the building" there will be no exclusive Halo 4, for MSFT.

2007 Oct 26 09:12 AM

[User 117413:]

I'm sorry Thomas but you don't look to informed about the X360: Halo 3 IS putting back MSFT into the gaming business and the X360 is going to have a very strong holiday season. Moreover, even though Bungie "left the building" as you said (though they still work with MSFT as 3rd party devs, so they didin't leave the town ;) ) MSFT still fully owns Halo IP rights so saying "there will be no exclusive Halo 4" is a completely uninformed statement.

Cheers and enjoy MSFT for the (few) good things it does
Roberto

2007 Oct 26 10:06 PM

[Tom B:]

"MSFT still fully owns Halo IP"

Bungie could call it something else. Remember, before Halo, there was Marathon and Myth (1 and 2)

2007 Oct 29 09:56 AM

[Creative In...:]

I do think that Apple will slowly take away a larger share of the PC marketplace, but only in the individual consumer market though and largely due to huge brand recognition thanks to iPod and iPhone. Business customers are not likely to switch any time soon, everything revolves around MSFT-design business systems for many businesses. That's where Linux comes in, but it's been trying to pressure MSFT for years and yet MSFT is still the most profitable software company in the world. I see Google as a more formidable opponent that MSFT should fear since if they succeed with Google Apps, they can eat away MS Office market share relatively quickly - that is just how viral their business model is.
I've actually analyzed MSFT just a few days ago: www.creativeinvestor10...

2007 Oct 26 07:16 PM