Microsoft Q2 Earnings, Windows 8: Ballmer's Up, Stock Is Down

Microsoft Q2 Earnings, Windows 8: Ballmer’s Up, Stock Is Down

Written by The VAR Guy 1
January 24, 2013

Microsoft (NASDAQ: MSFT) CEO Steve Ballmer sounds sky high, but investors seem tepid and perhaps skeptical. Backed by Windows 8, Microsoft announced "record revenue" of $21.5 billion for its Q2 ended Dec. 31, 2012.

Microsoft (NASDAQ: MSFT) CEO Steve Ballmer sounds sky high, but investors seem tepid and perhaps skeptical. Backed by Windows 8, Microsoft announced “record revenue” of $21.5 billion for its Q2 ended Dec. 31, 2012. Ballmer said Surface tablets, Windows Phone 8 and the re-imagined Windows have “sparked growing enthusiasm with our customers and unprecedented opportunity and creativity with our partners and developers.” But many investors turned a deaf ear to Ballmer, and Microsoft’s shares dropped a bit in after-hours trading today. Missing amid all the noise: Any mention of Microsoft’s Office 365 and Azure cloud businesses. Here’s the reality check for partners.

First, Microsoft bashers need not read further. The VAR Guy respects Microsoft’s progress over the past year. We’re talking about a software company that didn’t have any answer for the smartphone and tablet craze a year ago or two ago. Microsoft’s early cloud products (example: BPOS) also missed the mark. Fast forward to the present and Microsoft actually has a product or service in nearly all of the key markets the company needs to target.

Now for the true state of Microsoft: Somewhere between all of Ballmer’s brash statements and Wall Street’s tepid response, there’s the a truly reality. Windows 8 certainly has not bombed, but early PCs and tablets running the new operating system have not sparked a stampede of consumer or corporate upgrades. Moreover, Microsoft’s first home-grown tablet — Surface RT — seems more like an opening act rather than a true headliner. That’s where the Windows Surface Pro tablet enters the picture, starting Feb. 9.

In the meantime how is Microsoft actually performing. Here’s the blow-by-blow for Q2 2013, lifted from Microsoft’s earnings statement:

Windows division revenues grew 24 percent to $5.88 billion. Microsoft reaffirmed that it has sold “over 60 million” Windows 8 licenses to date, though it’s unclear how many of those licenses are sitting on unsold PC inventory.
Business division revenues fell 10 percent to $5.69 billion. Lync, SharePoint and Exchange delivered doubled-digit growth but the world seems to be waiting for the next version of Office.
Entertainment and devices revenues fell 11 percent to $3.77 billion. The video game market is cooling off…

Bottom line: Microsoft’s Q2 2013 net income was $6.37 billion, down from $6.624 billion in Q2 last year. Those results beat Wall Street’s expectations, but Microsoft’s top-line revenue revenue of $21.5 billion did not impress analysts so shares dipped a bit after-hours.

Oh and where the heck are mentions of Office 365 and Windows Azure? Nowhere within Microsoft’s earnings statement. But perhaps the software giant will offer some cloud mentions during an earnings call that’s starting right about now. Stay tuned for updates.