Microsoft Q4 2009 Highlights
- Quarterly revenues and net profits were the highest in its history
- The Client Division’s successful introduction of Windows 7 was the main contributor
- Microsoft’s software revenues are recovering faster than most other leading vendors
- Microsoft has a long way to go to become a Web 2.0 player
- It continues to announce Cloud Computing products and initiatives, but is slow to drive change
- Windows 7 is more than an upgrade – it is driving a rapid improvement in the PC market
Microsoft announced its Q2 FY10 (calendar Q4 2009) financial results this week. As usual I wanted to share some observations about how it is doing in the market recovery period. It is clear to me that the increased revenues from Windows 7 – launched on October 22nd 2009 – were almost entirely the driver of Microsoft’s return to revenue growth for the quarter. In total the company posted revenues of $19 billion – a company record. Its net profits of $6.7 billion were also a record.
Microsoft’s Gigantic Windows 7 Revenues Create Positive Growth In Q4 2009
Microsoft’s Client division recorded revenues of $6.9 billion, which was 70% up on Q4 2008 (see Figure 1). The transition would have been smoother if the company had been allowed to take the upgrade revenues in the previous quarter. But how sustainable is this new Client business? There are a number of factors to consider. In particular:
- Of course there was a huge PC market collapse in Q3 2008, so any business sales returning to normal would demonstrate strong positive growth. Microsoft’s results, however, are stronger than that.
- If we look back to the launch of Vista in January 2007 there was in fact a similar 65% quarterly growth in the division’s revenues – with strong growth continuing for a year until the downturn. This time, however, the dramatic change in growth (from a decline of –39% in calendar Q3) demonstrates a much stronger pickup in business.
- The fact that Intel’s PC Client Group reported revenues up 26% also points to sustainable success in the PC market. Back in 2007 it took a quarter after Vista’s launch for its revenues to pick up, although that may be due in part to the January launch.
Microsoft’s Software Revenue Shows A Stronger Upturn Than Other Leading Players
We shouldn’t get carried away with enthusiasm for the turnaround in Microsoft’s business, after all its Entertainment.., Microsoft Business and On Line Services Divisions continued to decline in the quarter, even if most showed improvement. When comparing it’s growth on a rolling four-quarter basis with other leading software providers, its –2% decline was better than either IBM (-2%) or Symantec (-5%). There’s no doubt in my mind that Oracle’s growth was stronger for the time being. Whether this will remain true for the next few quarters will be dependent in part on how it finances the acquisition of Sun, which has now been passed by EU regulators.
Microsoft Has A Long Way To Go To Emulate Web 2.0 Vendors
If we look at the revenue growth – again on a rolling four-quarter basis – of leading Web 2.0 players (see Figure 3) we can see that Microsoft has a long way to go to catch up. While the dramatically smaller sizes of some of these vendors may make direct comparison unfair, it’s clear to me that those companies that have succeeded in delivering their services via the Web have been less affected by the recession. Only Yahoo and eBay dropped into negative growth in 2009 and only Yahoo’s revenue growth is worse than its long time potential acquirer.
Microsoft Announcements In Calendar Q4 2009
Acquisition And Legal
On the acquisition front Microsoft bought the assets of Teamprise, which will help it provide cross-platform support for its Visual Studio product. It also acquired Sentillon – another addition to its growing Health Care business.
On the legal front Microsoft lost a case in the US court of appeal regarding its infringement of a patent held by Canadian company i4i in its Word and Office 2007 products sold in the US. It issued a statement saying it was pleased with the EU’s favourable view of its proposed changes to allow users to choose which browser they want to install on Windows PCs and to allow greater interoperability in the Windows server space with other non-Microsoft products and developments.
Cloud Computing
As usual Microsoft made a number of Cloud Computing announcements. In particular:
- It urged governments and industry to work together to build confidence in the Cloud
- It added Cloud Computing features to version 2.0 of Mediaroom
- It launched its Azure Platform, which allows for the integration of applications between PCs, mobile phones, PDAs and the Internet
- It announced a collaboration with CHT for the delivery of Cloud Services – in particular SaaS, PaaS and IaaS Cloud applications for PCs, mobile phones and TVs
Collaborative activities were also strong in the quarter with an n umber of announcements about partnerships. In particular:
- Siemens signed an agreement to licence Microsoft’s HealthVault
- It joined with HP in announcing a new Infrastructure-to-Application model
- To develop core banking applications with Temenos
- With NetApp to develop virtualisation, Cloud Computing and storage management
- An agreement with nComputing for multiuser computing
- To work on oil and gas industry standardisation with Energistics
- It announced a partnership with Intel and Dell for ‘new efficiency’ in high tech and electronics
- It announced an ERP+ initiative with Capgemini
- It reached a patent licence agreement with China’s YuLong Telecommunication for ActiveSync
In terms of product announcements, in addition to Windows 7 Microsoft launched Windows Server 2008 R2, Sharepoint Server 2010, its New Dynamics ERP offering for the Retail industry, Excel 2010 and new Armani Windows phones
Some Conclusions – The PC Market Is A Surprise Driver, What About Cloud?
I must admit I never thought that the PC market would come back out of the downturn as quickly as it appears to be doing. For Microsoft the dramatic increase in its Client business demonstrates a number of things; good timing to have a product available in time for the Christmas market; the ability to sell to consumers in the slackness of business purchasing; the pent up demand for a replacement for the much-criticised Vista operating system; the fact that PCs are still a growth business. Even if the PC market is accelerating to new highs, the uplift in revenues from Windows 7 will be temporary. In the longer-term Microsoft will need to concentrate hard on how to shift from a physical packaged-software business to a fully-fledged Web 2.0 player. Its investments in Cloud Computing are impressive to date, but it will need to manage the transition carefully. The need to balance new activities against huge existing business lines will naturally slow up the process.
Was this article interesting to you? Do you disagree with my findings? Let me know by commenting below.
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