Microsoft Earnings: Surface Tablet, Windows 8 Sales Reality Check
Microsoft (NASDAQ:MSFT) is expected to announce Q3 2013 earnings today. Those results should provide new clues about Windows 8, Surface tablet and cloud-related sales. The earnings arrive only days after IDC said Q1 2013 PC shipments fell about 14 percent. Most folks assume that's bad news for Microsoft. But here's the irony: Even if PC shipments fall, Microsoft's long-term business could grow. Here's why.
Think of it this way: Microsoft likely makes about $50 to $100 for each PC sold with Windows, depending on various licensing models. But Microsoft makes about $599 to $999 on each Surface RT or Pro tablet sale. So even if the PC market shrinks, Microsoft could potentially generate more revenue thanks to its hardware focus — though The VAR Guy certainly isn't making any revenue or profit predictions amid the current market inflection points, which are huge.
Among the variables Microsoft is currently navigating:
- Desktop: The software company in January 2013 insisted that Windows 8 was a hit, selling 60 million licenses. But IDC now says Q1 2013 PC sales shrank 14 percent, and Intel's (NASDAQ:INTC) financial results from earlier this week were not encouraging. Plus, it doesn't sound like sales of Windows-based tablets and smartphones are setting the world on fire.
- Server: Here, the story remains stronger — especially for Microsoft's partners. Windows Server 2012 and its Hyper-V enhancements have been well-received in the market. It's a safe bet demand for server applications (Lync, SharePoint, Exchange, SQL Server) remains strong, too.
- Cloud: Office 365 is gaining momentum. It sounds like sales are growing more than 100 percent annually. What about Windows Azure? Amid a recent price cut, Azure's financial performance head-on against Google and Amazon Web Services is unclear. Microsoft's cloud-oriented partner programs are improving but they still miss the target in some areas. A prime example: Partners that want to manage Office 365 pricing and end-customer billing must sell to customers with 250 or fewer seats. Plus, those Office 365 Open sales require one-year customer commitments — not exactly a cloud-friendly mentality.
Still, the biggest wild card for today's earnings call is the Windows 8 strategy, where Microsoft is preparing the Blue upgrade and perhaps even a Surface channel partner program. Rumors are swirling that Microsoft may even bring back the classic "Start" button to make Windows 8 less confusing for first-time users.
Either way, The VAR Guy will be back later today with analysis of Microsoft's Q3 2013 financial results.