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).

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
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…

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Upcoming Events

Latest on MT

Should CEOs resign after a personal scandal?

Should CEOs resign after a personal scandal?

Antonio Horta-Osorio says he won't quit Lloyds after The Sun labels him a 'love rat'.

Was Virgin Trains right to call out Jeremy Corbyn?

Was Virgin Trains right to call out Jeremy Corbyn?

Attacking politicians is seldom a good idea, no matter how far from power they seem.

Why working mothers are screwed

Why working mothers are screwed

Working mums are paying a 'motherhood penalty', missing out on pay rises and promotions.

How to stop your business getting too big for you

How to stop your business getting too big for you

Doubling your team overnight might sound like a start-up's dream, but it can very quickly turn into a nightmare if you're not careful, says digital marketing entrepreneur Guy Levine.

Aldi and Lidl's growth story is far from over

Aldi and Lidl's growth story is far from over

UPDATE: The discounters continue to expand market share, but there's a glimmer of hope for Tesco. Asda not so much.

Why your business should consider ditching bonuses

Why your business should consider ditching bonuses

Star fund manager Neil Woodford is getting rid of bonuses, claiming they can cause the wrong kind of behaviour.