By Rebecca Burn-Callander Friday, 25 January 2013

Windows of opportunity for Microsoft but tablets prove poor medicine

Microsoft has reported record revenues for the second quarter, but profits have dipped 3.7% to $6.38bn (£4.04bn).

Well, this is interesting. Just like Apple, tech giant Microsoft seems to have had a bumper quarter on paper, yet profits disappoint. Revenues are up 2.7% to $21.46bn (£13.59bn), a new record for Microsoft, driven by pre-sales and upgrades to Windows 8. Profits have failed to follow suit, however, falling nearly 4% on the same period last year.

So, what’s eating away at Microsoft’s margins? It appears that the Surface tablet, Microsoft’s rival to the iPad, has performed rather less well than expected. The Surface was pegged as a massive revenue generator for Microsoft – especially over Christmas (although it was barely launched in time for the Christmas rush), yet sales data for the tablet is conspicuously absent from the financial statement. Likewise, Microsoft remains mute on the amount of new Windows Phone 8 units shifted over the period.

Still, the all-powerful Windows remains unshakeable as the platform of choice for most computers. And the mighty Xbox remains the hottest gaming device in the industry, smashing sales of the rival Wii and Playstation. Microsoft is not completely invulnerable, however, losing ground to Google and Apple on newer devices (the iPad among them), which use rival operating systems.

That said, analysts are pretty chuffed with the results. The technorati were predicting a full-on profit slump and the success of Windows 8 has taken everyone by surprise. ‘This was the first time in memory we haven't seen disappointment in the Windows line,’ says Citi analyst Walter Pritchard.

Microsoft’s share price dipped only 1.4% in after-hours trading. Compare this to Apple, which lost $50bn of its market value after its – very respectable – results failed to appease an exacting Wall Street.

Perhaps this is why Microsoft CEO Steve Ballmer is so cheerful in his statement: ‘With new Windows devices, including Surface Pro, and the new Office on the horizon, we'll continue to drive excitement for the Windows ecosystem and deliver our software through devices and services people love and businesses need.’

All very jolly, but the fact that Microsoft is relying so heavily on two products must be something that the big man is losing sleep over…

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