More like this

Business

Arrow

The Channel

Microsoft brings SUNSHINE – but it's a CLOUDY DAY

Stock market's not feeling Redmond's way

Microsoft campus

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 fiscal 2015, which ended on December 31 – a modest 8 per cent increase over the same period a year ago.

Net income, on the other hand, was down 10.6 per cent, to $5.86bn. Still, Microsoft managed to earn $0.71 per diluted share, which was in line with what Wall Street was expecting to see.

More troubling was the continued fall-off in Redmond's traditional software businesses, including sales of Windows and Office.

Revenues for the Devices and Consumer Licensing division, which covers sales of Microsoft's cash cows to consumers, were just $4.17bn for the second quarter, a 25 per cent decline from the year-ago period.

Sales of consumer Windows licenses slumped across the board, with revenues from OEMs down 13 per cent for both Pro and non-Pro (formerly known as RT) versions of the OS. But sales of Office were particularly hard-hit, with revenues down 25 per cent compared to Q2 of 2014.

On the Commercial Licensing side, revenues were down 2 per cent, year on year, to $10.68bn, driven mostly by a 13 per cent slump in Office sales.

Microsoft likes to say that some of these Office setbacks are due to customers ditching their traditional, perpetually-licensed copies of Office in favor of Office 365 subscriptions. For example, it says there are now more than 9.2 million subscribers to Office 365 Home and Personal, which is up 30 per cent over the previous sequential quarter.

Be that as it may, the Devices and Consumer Other business unit – where Microsoft books its consumer Office 365 revenue, among lots of other bits and bobs including app store purchases and retail sales – brought in just over half as much in revenues for Q2 as the Devices and Consumer Licensing division did.

Commercial Other brought in less than a quarter of what Commercial Licensing did. Whatever gains subscription Office made, they can't have fully offset the decline in perpetual-license sales.

There were other bright spots in this quarter's report. Microsoft reported Phone Hardware revenues of $2.44bn, for example – which is great, considering Redmond wasn't even in the phone business a year ago. But that figure was down 12.5 per cent from the previous sequential quarter.

Surface tablet sales for the quarter remained solid at $1.1bn, up 23.6 per cent from the year-ago period, which was consistent with Q1's 21.6 per cent increase. With the Surface Pro 3, Microsoft finally seems to have got the formula right for this type of device. Nonetheless, overall revenues for the Computing and Gaming Hardware were $4bn, a 10.6 per cent year-on-year decline.

In other words, it was the same story as recent quarters, where new markets such as devices and cloud are growing while traditional mainstays like – oh, you know – software are dwindling or staying flat. Whether the launches of Office 2016 and (possibly) Windows 10 this year can curb those trends remains to be seen.

Microsoft shares dipped slightly on the news, dropping just over 4 per cent in after-hours trading. ®

Sponsored: The world has changed, has your IAM strategy?