back to article Microsoft brings SUNSHINE – but it's a CLOUDY DAY

Microsoft posted another quarter of respectable results on Monday, matching analysts' earnings estimates and slightly outperforming on revenue, but its strong showing couldn't disguise the continued shakiness in its core software business. The software giant reported total revenues of $26.47bn for the second quarter of its …

  1. cambsukguy

    Isn't it a good thing...

    ...that they are making less and less from Office and Windows but increasing income from other sources.?

    All I hear is that they are desperately reliant on Windows licences and Office sales.

    If they segue Office to 365 and make money from XBs, games and Surfaces (who'd have thought?) and even from phone hardware (!) then they *are* diversifying - which is a very good idea, generally meaning they are more protected from any given area suffering a downturn.

    If Windows 10 actually sells in the year following the giveaway (and the money from the new sales from the getgo), then they will make money from licenses and all the other stuff too.

    All in all, they ought to be reasonably happy, although the markets seem to disagree - probably why I don't dabble in the markets.

    1. thames

      Re: Isn't it a good thing...

      The problem is that the products which they have a near monopoly on, and on which they make massive profits are declining, while the ones they are trying to transition to (hardware, cloud, etc.) are subject to serious competition. Their profit declined 10.6 percent.

      The big question isn't total sales volume, it's whether they can manage their way from a high profit company down to one with more "normal" profit margins. The investors will demand savage cost cutting, and trimming of marginal product lines.

      Sooner or later someone will get the bright idea that if they hived off Windows and Office into a separate company, they could manage them in maintenance mode as legacy enterprise product lines with a much, much smaller support staff. They could then squeeze their corporate customers until their pips squeak, and really rake in the cash, to all be paid out in dividends. Even if this kills those products off in the long run, it can still be more profitable from a present value perspective.

      Don't tell me that the vulture investors haven't been thinking of doing this and running the numbers through their spreadsheets. It's right up the alley of someone like Carl Icahn. The only thing stopping them at this point will be figuring out how to get control in order to pull it off.

      1. fishman

        Re: Isn't it a good thing...

        <<<They could then squeeze their corporate customers until their pips squeak, and really rake in the cash>>>

        Isn't that what Microsoft is already doing? It seems that every year there is a big price hike.

        1. thames

          Re: Isn't it a good thing...

          Microsoft could quite easily double or triple (or more!) the prices they charge their corporate customers for most of their products, and those customers would still pay it even if they were very unhappy about it. What else are those customers going to do, at least over the short run? They would squeal and cry, but they're locked in and have no "plan B".

          Over the long run those customers could find alternatives, but corporate raiders don't give a damn about the long run so long as they rake in enough cash in the short run to make it worthwhile. From their perspective, sometimes running a company into the ground and stripping the assets bare really can be the most profitable thing for them to do. When you are selling a legacy product, there is no long term future anyway, so you may as well make hay while the sun shines and screw as much money out of your customers while you can.

          Consumer prices of course are a different matter, but then the retail price of MS Windows is already a lot higher than what corporate customers pay.

          1. Gray
            Devil

            Re: Isn't it a good thing...

            +1 upvote! Every government entity in the U.S. runs on Microsoft OS/software. MS could raise their license fees ten-fold, and the government would squeal and scream, but in the end would simply pass the increase along to the taxpayers. Would they switch to an alternate OS? Probably not. The message would be the same as today: "We can't afford the switch; we don't have the skilled people; it would take too long; there's too much risk." Which is just another way of saying, it's not our problem. It's a funding problem, and that's on the back of the taxpayer. The safe thing is to pay the MS hikes, and consider it business as usual.

          2. big_D

            Re: Isn't it a good thing...

            Short term profit and burning bridges in the race for the next quarter's figures is an idiots game.

            It is just a very expensive version of parse the parcel. Whoever is left holding the shares when there are no customers left to scew over is going to lose big time and all the employees are going to be looking for new employment.

      2. Charlie Clark Silver badge

        Re: Isn't it a good thing...

        They could then squeeze their corporate customers until their pips squeak, and really rake in the cash, to all be paid out in dividends.

        Nah, currently it's still far more tax-efficient to load-up on debt and do a share buyback. But I think you're generally right: the pressure do some kind of spin-off will increase. However, MS shareholder structure is unusual with Bill Gates, Steve Ballmer and others still holding huge numbers of shares making it a lot harder for the activists. There are other companies out there that are easier to bully.

  2. P. Lee

    Year-on-year figures - a reasonable indicator?

    My initial thought was that people who bought last year won't be buying this year. You don't buy more Office licenses if you've just got rid of 57,000 people (HP) and so on. Bought an xbox last year? Great, but its unlikely you'll do it again this year. These are capital purchases. Ditto Surface. With large companies laying off large numbers of people, simplistically, I'd be nervous about increasing revenues if unit sales aren't going up when looking at a company with as much market power as MS. It looks like short term profit grabbing which might do longer term damage as home buyers scurry to LibreOffice and just grab Windows 10 with no intent to lock themselves further into the Windows ecosystem. Windows only has games to make extracting home users from Windows difficult - games which users will probably grow out of.

    Revenues may be going up, but is that just due to price hikes? That isn't the whole story. How many of those Office 365 licenses are cheap/freebie OEM-type deals for the first year, which won't be renewed? I would guess that many home purchasers will purchase it bundled into the capital cost of a new PC (under the hazy notion its like the last time they bought Office), but they won't renew it later.

    It will be interesting to see if the subscription model keeps people on-board with lower payments, or allows them to jump ship and achieve faster financial reward for doing so.

    1. thames

      Re: Year-on-year figures - a reasonable indicator?

      A lot of the MS Office 365 licenses are just either packaged with normal MS Office sales, or they are even directly cannibalizing them. It's a mature market.

      The long run threat to MS Office though isn't going to be competing equivalent products. It's going to be changing work practices. Why do most office workers need a word processor program? If they don't need to format ink to be printed on paper, then most of the features of MS Word are redundant, or even detrimental. What's going to kill off MS Office isn't another word processor, it will be a product which makes the word processor obsolete.

      Someone is going to spot the opportunity, and find a way to sell it to customers. That someone won't be Microsoft though.

      1. Slawek

        Re: Year-on-year figures - a reasonable indicator?

        For your information: Office != Word

        1. thames

          Re: Year-on-year figures - a reasonable indicator?

          @Slawek - Sure, I know that MS Office is an umbrella brand for multiple products which are often bundled together. Using MS Word was just an example. I wasn't going to go through their entire product line and conduct a marketing analysis on each. I had already edited the comment down to keep it brief.

          The point is though that product lines like MS Office or other similar ones came from an earlier era. We now have ubiquitous communications and ubiquitous display surfaces (phones, tablets) that aren't paper. Working practices will evolve to take advantage of this, and that will involve different software rather than just a refresh of existing product lines.

          1. Diogenes

            Re: Year-on-year figures - a reasonable indicator?

            The official word here at school is to use google docs as much as possible - they contain all the functionality 95% of us need (its only a few weardo's like me who run macros ) our network admin just finished an analysis of "ribbon hero" data (which tallies clicks on tabs, and the highest scorer by a country mile was me - most of the staff had scores below the students, and it appears I am the only person in the 80+ staff and 11000 kids to create my own styles,

        2. big_D

          Re: Year-on-year figures - a reasonable indicator?

          True Slawek, but he does have a point. At the moment, we still use Word for generating documentation, even if it isn't destined for print.

          We use Excel for calculations and analysis.

          We use PowerPoint for presentations.

          We use Outlook for unified calendering, email and contacts.

          If those uses are slowly eroded by new products from outside, then the "need" for Office will diminish. And moving to Office 365 is a way of trying to spread that 2 / 3 year income spike into constant income.

          MS need to keep Office relevant - and looking at some of the experimental tools, such as the teaching based presetnation recorder they launched last year; they are not sitting on their laurels.

          1. thames

            Re: Year-on-year figures - a reasonable indicator?

            @big_D - Back when Microsoft was still trying to pretend that the Internet and the web weren't serious "enterprise" level technologies, they were pushing MS Office as a sort of web browser. To browse the "Microsoft web" you used MS Word and viewed Word documents with embedded links to other word documents. I worked for a very large company that rolled this out as their "intranet". It was absolutely wretched, as can be imagined. Actually, you probably can't imagine how wretched it was unless you actually tried it, things were that bad. It just didn't suit what it was trying to do. After a number of months the people responsible for this admitted what a bad idea this was and binned it in favour of using an HTTP server and web browsers.

            It's a good example though of "the answer is MS Office - now what was your question?". I don't want to leave the impression though that switching to comparable competitor is "the answer". We need to work in different ways, and those ways need to be based on the idea that we aren't printing on paper and mailing envelopes around anymore.

  3. Arctic fox
    Windows

    Sometimes comparisons can be a little bit tricky to make.

    Let's take the example of Office, the version installed from disk that the customer has purchased contra monthly subs for Office 365. It is not reasonable to compare the contracting sales of the product in a given year against the increase in the number of subscribers to the online version in any one year because that fails to take into account that for most customers (private or enterprise) they do not buy the latest Office package each and every time one is released. One would have to compare with, say, a three year period of subs to 365 contra sales of the latest "on disk" version for that given period. How this in fact is going to come out in the wash for Redmond I do not pretend to know - I think we need a couple more years figures before we can draw any conclusions on this particular score.

  4. big_D

    RT?

    both Pro and non-Pro (formerly known as RT) versions of the OS

    Erm, non-Pro is / was Windows 8 (Core). Windows RT was a version specifically for ARM processor based tablets.

    Pro is the middle land between consumer Windows 8.1 and Windows 8.1 Enterprise. It allows domain integration and brings a few other bits and bobs not found in the consumer version.

  5. RyokuMas
    Facepalm

    Over to you...

    ... and cue the usual suspects trotting out the same old links amid indignant rants about Microsoft's patent extortion on Android...

  6. A Butler

    On a positive note...

    Just for a bit of balance the Surface Pro 3 is doing a storming business and deservedly so, its one of the best tech devices out their currently, plus is competing at the MACBOOK level of purchasing and winning. Of course it does not have an Apple logo on it or runs Android so no points here on old El Reg!

    The XBox outsold the Sony PS and is making money after years of MS sticking with the product; a lesson there for short sighted accountants that run other businesses!

    Microsoft is still making stack loads of cash, has little or no competition in the business Server / PC current install base environment. Admittedly the consumer device environment is fragmented like never before, however I still see every domestic house ends up with a least 1 laptop (usually Windows sometimes MAC) regardless of how many crappy Android tablets they play around with or their kids destroy with poor quality games and apps!

    Plus Windows 10 is on the way and looks promising. Interesting year ahead as for commentary of MS's demise lets review that next year!

    1. WP7Mango

      Re: On a positive note...

      Although Surface Pro 3 doesn't run Android natively, it CAN run Android apps by installing Bluestacks. But why would you bother? I tried it and it wasn't worth the hassle. There are enough apps in the Windows store and there's millions of desktop apps to choose from too.

    2. Charlie Clark Silver badge

      Re: On a positive note...

      The XBox outsold the Sony PS

      Numbers and source, please.

  7. MacGyver

    Not really a Luddite either.

    I will never buy a subscription to Office 365, I will use my current copy until I can longer use it, then switch to an opensource. I'm not sure why ANYONE would back themselves into a "Pay Forever" strategy but it's not for me. I'm not really a Luddite either, I just like having equity. If a business is "renting" their building, and "renting" their rackspace, "renting" their software, and basically "renting" their employees, how much value can they have "in" their company?

  8. Paul Herber Silver badge

    Is this the tipping point where sales start falling XPonentially?

    1. MacGyver

      I think you mean Vista-nentially.

      1. RyokuMas
        Coat

        "I think you mean Vista-nentially."

        That wasn't a fall, it was a plummet.

  9. Vince

    Part of Microsoft's problem is the total inability to listen or understand.

    They've gone full pelt into pushing Cloud as the answer to everything, and even when you're not interested, and actually want to purchase products the "traditional" way they're making it considerably more expensive than the cloudy version, pushing people into considering alternatives (note to MS: The alternative is not that we get forced into cloud, but instead go elsewhere or just don't change anything).

    If they'd actually let people buy things the traditional way without so much fuss they'd actually get more sales!

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