An often irreverent look at some of this week's other news ...
On Thursday, Microsoft announced earnings for its fiscal third quarter, which ended March 31, 2011. The company earned net income of $5.23 billion on revenues of $16.43 billion, figures that were up 31 percent and 13 percent, respectively, from the same quarter one year prior. But even these very solid earnings are causing a lot of hand-wringing, and as I'll discuss in the next few blurbs, there are signs that the software giant's core businesses may be headed for a fall.
Microsoft Earnings: No, the iPad Isn't Responsible for Windows Sales Shortfall
More specifically, Windows sales actually fell year over year, according to Microsoft, with the division responsible for this software reporting a 4.4 percent drop to $4.45 billion in revenues for the quarter. Analysts had previously claimed that strong iPad sales were to blame, but of course iPad sales were themselves far below expectations in the same quarter, so that can't be it. (In fact, Apple sold just sold 4.69 million iPads in this time period, compared with 82.4 million PCs sold in the same time frame; Windows 7 isn't sold on all of those, just most of those, but it's sold otherwise, so let's just call it even.) So what's with the shortfall? Microsoft blames consumer demand, which fell 8 percent, but also declining sales of netbooks in particular, which fell 40 percent. But the company says that consumer demand for tablets, like the iPad, only partially explains that fall-off. Although PC sales to businesses were up 9 percent, overall PC sales fell just 2 percent in the first quarter, and when you consider that the same quarter a year ago occurred right after Windows 7 shipped—a time in which consumers had been simply waiting to upgrade—I suspect that's a big part of the reason. (In an earnings conference call, Microsoft General Manager Bill Koefoed said this as well.)
Microsoft Earnings: Office Picks Up the Slack
Any shortcomings in the Windows business were, however, made up very nicely by the Business and Productivity division, which sells Microsoft Office. And according to Microsoft, adoption of Office 2010, especially among consumers (go figure), was higher than expected. This division saw 21 percent growth year over year to $5.25 billion, and Office 2010 is now the fastest-selling version of Office ever, the software giant reports, and businesses are deploying it at a rate of five times that of its predecessor.
Microsoft Earnings: Xbox 360 Continues to Roll, Thanks to Kinect
Microsoft continues to hype Kinect, though I find this hype-friendly device to be a one-trick pony. The Entertainment and Devices division, which makes the Xbox 360 and Kinect, saw revenues jump 60 percent year over year, which probably wasn't a very high bar at all, and the software giant credits Kinect for this boost. Fair enough. But the division's profits were tiny, at just $225 million. I continue to believe that Microsoft over-hypes Kinect and Xbox 360 specifically because they represent its only perceived success with consumers, and consumers are clearly in the driver's seat today when it comes to technology spending. But this business continues to have almost zero cross-over with Microsoft's core businesses of Windows, Office, Server, and Online (business) Services, despite some weak attempts to prove otherwise. Spin it off, for crying out loud.
Microsoft Earnings: For the First Time, Apple's Profits Are Higher than Microsoft's
Will the indignities never end? In May 2010, Apple surpassed Microsoft by the largely artificial market-cap standard. And then in late 2010, its quarterly revenues surpassed those of Microsoft's too. Now, Apple's latest quarterly profits of $5.99 billion have surpassed Microsoft's quarterly profits (of $5.23 billion) for the first time. We've come a long way since 1997, when Microsoft saved Apple from bankruptcy by investing $150 million in the company and publicly promised to continue supporting the Mac with new versions of Office. (And yes, history rewriters, that is in fact exactly what happened.) The ultimate revenge moment for Apple, however, remains in the future: I'm thinking something along the lines of forcing Microsoft to pay it to include iTunes in Windows as a replacement for Windows Media Player, or perhaps allowing Windows Phones to sync via iTunes. You know, something degrading.
US Department of Justice Agrees to End Antitrust Oversight of Microsoft
On May 12, the US Department of Justice (DOJ) will allow its decade-old antitrust settlement with Microsoft expire, and the agency will cease its oversight of the software giant's business activities. The DOJ has closely monitored Microsoft since the November 2001 settlement, which was to remain in effect for five years but was later extended. Though Microsoft says it will continue to comply with the terms of the settlement going forward, let's face reality here: This is a kinder, gentler Microsoft than the belligerent superpower that went kicking and screaming into various courts in the late 1990s. In fact, thanks to the US case against the company, and later cases in the European Union (EU) and elsewhere, Microsoft is a significantly hobbled and barely recognizable shadow of its former self, unable to prevent a new generation of stronger competitors like Apple and Google from running amok in markets that the software giant would have had all to itself a decade earlier. Will a stronger, more aggressive Microsoft emerge on the other side of this? No, I don't think so. This is pretty much what middle age looks like for a software firm. Get used to it.
Barnes & Noble Accuses Microsoft of Abuse
On the other hand, it doesn't appear that Barnes & Noble (B&N) got the memo on Microsoft's hobbling. The bookseller this week charged Microsoft with abusing patent lawsuits to prevent it and other device makers from using the free Android OS in their products. (B&N's Nook Color is based on Android, and Microsoft recently sued the firm for infringing on six of its patents.) "[Microsoft is] misusing these patents as part of a scheme to try to eliminate competition to its own Windows Phone 7 mobile device operating system posed by the open-source Android operating system and other open-source operating systems," the B&N complaint reads. B&N has requested a federal jury trial to resolve the matter. There's just one problem for B&N: Microsoft actually met with the company last year, presented evidence that the Nook violated its patents, and asked them to license the technology. They refused, though Microsoft has similar deals with other Android vendors like Amazon and HTC. Good luck in court, B&N.
Amazon Responds to Apple's App Store Trademark Suit
Speaking of wasting time in court, Amazon this week responded to Apple's trademark lawsuit, in which the Cupertino company sued Amazon for calling its Android app store the, uh, Appstore for Android, a name Apple says is too close to its own "App Store." Like Microsoft before it, Amazon argues that the term "app store" is far too generic to trademark, and the company has simply asked the court to throw out the case. "Amazon has not received a license or authorization from Apple to use the term 'app store,' and contends that no such license or authorization is required because 'app store' is a generic term, and Amazon's use of the term causes no likelihood of confusion, dilution, or unfair competition," the company wrote in the filing. Yep.
Apple's Coming Cloud Service to Be Called iCloud
Just one thought here: How original.
Sony Faces Class-Action Lawsuit in Wake of PSN Hack
Perhaps not surprisingly, Sony's inept handling of a hugely damaging hacker attack on its PlayStation Network—which could exposed the personal data and credit card information of 77 million customers—has already resulted in a class-action lawsuit. "This has caused, and continues to cause, millions of consumers fear, apprehension, and damage," the filing reads. Yes. I'm not normally a fan of this kind of thing, but it's pretty clear that Sony deserves to be sued back into the Stone Ages. Which is when, apparently, the company established its network security policies.
RIM Slashes Forecast as Inevitable Hits It in Face
Everyone has been predicting that sales of Research in Motion's (RIM's) BlackBerry devices were poised to fall off a cliff thanks to ever-increasing sales of consumer-friendly devices like the iPhone and Android. Everyone, that is, but RIM, which has staunchly remained committed to what is pretty clearly a losing strategy. Well, no more: The company this week finally lowered its quarterly earnings and revenues forecasts, citing slowing sales of its products and a lackluster launch of its would-be iPad competitor, the PlayBook. The problem for RIM, of course, is that its bread-and-butter product, the BlackBerry, is aging, and its planned replacement, a QNX-based OS that was also used in the PlayBook, is clearly not ready. You know, this reminds me of two other fairly recent phone-based technology evolutions that occurred with Palm (and webOS) and Microsoft (and Windows Mobile). And heck, both of those turned out just fine.
This Week on the Windows Weekly Podcast
Leo and I recorded the latest episode of the Windows Weekly on schedule this week, so it should available for download by the end of the weekend on iTunes, the Zune Marketplace, and wherever else quality podcasts are found, in both audio and video formats.
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