WinInfo Short Takes: Microsoft Earnings Announcement Special Edition

An often irreverent look at some of the week's other news, including the Microsoft earnings announcement, and... well, actually, it's just about the Microsoft earnings announcement. Hey, it happens sometimes. But seriously, it was a big deal...

WinInfo Blog

Short Takes

   - Shock and Awe: Microsoft Earnings Blow Past Expectations

   - Comparing Apples to Oranges. Or At Least to Microsoft.

   - More on Microsoft's Earnings

   - Even More on Microsoft's Earnings

   - Home Premium is the Most Popular Vista Version, As Expected

   - Xbox 360 Data Reveals Some Strength, Some Weakness

   - PlayStation Creator Resigns from Sony

WinInfo Blog

     by Paul Thurrott, [email protected]

This week, I was in Denver to cover for a coworker at the Windows Server "Longhorn" Roadshow. The weather was rough, but the biggest problem was that I had to give three presentations and was provided with only enough material for two presentations. Apparently, Microsoft was supposed to show up with Longhorn Server code and a Windows Server Virtualization demo but never did. So I had to wing it: The result was a "Top 10 Features in Windows Server Longhorn Beta 3" presentation, which I've since translated into an article for the SuperSite for Windows ( That's a nice case of "making lemonade," I guess, but imagine what it's like have to present the virtualization track at a show only a week after Microsoft delayed that technology six months, and you'll gain some insight into how I was feeling going into this event.

Huge irony of the week, part 1: The day after I got home from Denver, Microsoft shipped Longhorn Server Beta 3. I would have enjoyed having that a week ago.

Huge irony of the week, part 2: Two days after I got home from Denver, a laptop containing prerelease Windows Server Virtualization code showed up on my doorstep. I'm going to give the laptop to the person presenting the virtualization track at the next roadshow, which just so happens to be in Boston, but I would have really enjoyed getting that a week earlier as well.

Huge irony of the week, part 3: I realize none of these occurrences are really ironic, but I enjoy the fact that most people think they are. I guess I'd just say that this course of events has been deflating. Or irritating. Or maybe just typical.

Stupid moment of the week: Instead of checking the weather online before I flew to Denver, I checked it using the print version of the "New York Times," which has a weather page with a grid listing the weather for the next three days in every major city in the United States. According to the paper, the temperatures in Denver for Monday through Wednesday were supposed to be 80, 75, and 78 degrees, which sounded lovely, so I packed shorts, t-shirts, and no jacket. Upon arriving in Denver, however, the pilot used words such as tornado, sleet, snow, and rain. Turns out I had inadvertently looked at the weather for Dallas. Yeah, I'm an idiot.

Leo and I recorded another episode of the Windows Weekly podcast yesterday, which should be up today, tomorrow, or soon thereafter. Check it out on the SuperSite for Windows or at

Sorry if this week's Short Takes seems a little unidirectional, but with the wellspring of financial data that's been coming out of Microsoft since last night, it made sense to just focus on that. Sure, other stuff happened this week, but there's so much baloney about Windows Vista in the press lately, such as "Windows Vista=Windows Me II?" that I felt some reality needed to be injected into the equation.

Short Takes

An often irreverent look at some of the week's other news

     by Paul Thurrott, [email protected]

Shock and Awe: Microsoft Earnings Blow Past Expectations

We often joke about how Microsoft makes a billion dollars every quarter, but this time the company really did: Last night, the software giant announced profits of almost $5 billion on revenue of a whopping $14.4 billion in the first quarter 2007, both of which are records for Microsoft and huge gains over the same quarter last year (when the company's profits rose 65 percent and its revenue was up 32 percent). Microsoft credited unexpectedly high sales of Windows Vista and Microsoft Office 2007 for the boost, and backed that up with numbers: Its Windows client division brought in $5.27 billion, up 67 percent from a year ago, and the division responsible for Office 2007 saw sales rise 34 percent to $4.83 billion. Microsoft said that the Windows sales mix for the quarter was 85 percent Vista, 15 percent Windows XP. You can try to paint Vista as a failure, but the reality is that the latest version of Windows is off to a smoking start. Don't believe the FUD.

Comparing Apples to Oranges. Or at Least to Microsoft.

Industry darling Apple released its first calendar quarter 2007 financial results earlier this week, and the press reacted with the usual amounts of hyperbole and glee. Let's compare the results from Apple and Microsoft, shall we? Apple's revenue of $5.26 billion was about one-third of Microsoft's. Microsoft's profits last quarter were six and a half times bigger than those of Apple's, which made $770 million. Why is this amount notable? Apple was widely applauded for increasing its margins, but the reality is that Microsoft's profits are about two and a half times greater per dollar made than those of Apple. Although Apple gets all the good press--analysts were quoted as just being "relieved" at Microsoft's announcement yesterday--Microsoft is actually doing quite a bit better than Apple. And that's why the situation with the company's stock prices—Microsoft's stocks are mired around $30 while Apple's have surged past $100--doesn't make any sense. It's interesting to see how differently these companies are treated, and not in a way that makes sense given their actual performance.

More on Microsoft's Earnings

But let's not get off-track. Looking more closely at Microsoft's quarterly earnings, some other interesting figures emerge. The division responsible for the Zune and Xbox 360--neither of which are setting the market on fire right now--saw sales unexpectedly drop 21 percent to $929 million. Microsoft's online services revenue actually rose 23 percent year-over-year to $623 million, despite Microsoft's continued problems battling Google in the online services market. Best of all, Microsoft's increasingly important server division saw sales rise 15 percent to $2.75 billion, with its income up 32 percent to $979 million. (And not to beat this comparison to death, but Microsoft's server division made more profit last quarter than all of Apple's products combined. I guess you need to sell an awful lot of iPods to match the power of all those client access licenses.)

Even More on Microsoft's Earnings

Allow me to predict one of the weak complaints Vista bashers will make about Microsoft's financial results: They'll charge that Microsoft's earnings last quarter were artificially inflated because the company previously deferred revenue from the free and low-cost Vista upgrades offered during the 2006 holiday season. So is it true? According to Microsoft, the company deferred $1.67 billion in revenue from the last calendar quarter of 2006 until the first calendar quarter of 2007, or about $1.14 billion in profits. But even without that one-time gain, Microsoft's revenue would have been up 17 percent. More to the point, the slice of the pie that Windows is responsible for would have still jumped a whopping 30 percent. Microsoft CFO Christopher P. Liddell said that regardless of trends, sales of Vista were $300 million to $400 million higher than the company’s internal projections. Sales of Office 2007 were about $200 million higher than expected.

Home Premium Is the Most Popular Vista Version, as Expected

One of the interesting factoids that came out of Microsoft's earnings report is that the premium versions of Vista--mostly Vista Home Premium, but also Vista Ultimate--account for about 71 percent of all Vista versions bundled with new PCs. That percentage represents an 18 percent jump year-over-year compared with sales of premium XP versions (primarily XP Media Center Edition 2005).

Xbox 360 Data Reveals Some Strength, Some Weakness

Microsoft said it sold just 500,000 Xbox 360 consoles last quarter as demand for the console decreased after the holiday season. Last quarter's sales puts the worldwide installed base of the console at about 11 million units. The good news is that more than six million of those Xbox 360 owners are members of Xbox Live, Microsoft's online service, and the Xbox 360 accessory attach rate in the United States remains at record levels. Looking ahead, Microsoft said that the division responsible for its Xbox 360 and the Zune will be profitable by the July quarter. I won't hold my breath.

PlayStation Creator Resigns from Sony

This week, PlayStation creator Ken Kutaragi announced his resignation as chairman and CEO of the Sony Computer Entertainment division. Kutaragi will stay on through June, after which time he'll serve as honorary Sony chairman and senior technology adviser (read: be put out to pasture). Kutaragi's departure is no coincidence: His latest console, the PlayStation 3, is overpriced and not selling well because of his decision to use expensive and hard to manufacture components in a bid to overpower the Xbox 360. That strategy has backfired: The technologically inferior Nintendo Wii continues to outsell both the Xbox 360 and the PlayStation 3, and the Xbox 360 retains enough key advantages over the PlayStation 3 to prevent Sony from dominating the market. In March, retailers in the United States sold 259,000 Wiis, 199,000 Xbox 360s, and 130,000 PlayStation 3s. In the previous generation of consoles, the PlayStation 2 controlled 70 percent of the video game console market. As for the official reason for Kutaragi's resignation, Sony said that he's "decided to pursue his dreams beyond PlayStation." As have gamers, apparently.

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