Leaky Microsoft paddles hard but stays still

Microsoft's latest quarterly figures show overall revenues and profits almost unchanged, despite strong sales of games systems.

by Andrew Saunders
Last Updated: 11 Mar 2011
The results were rushed out early after the firm inadvertently leaked them on its own investor relations website. They show revenues up a little – to $19.95bn from $19bn year on year – and  profits down very slightly to $6.63bn from $6.66bn. And its motion-sensing games controller, Kinect, is proving a big success with gamers – the firm shifted some eight million at $149 a pop in the last three months of 2010.

So the numbers are holding up and it’s got a hit product on its hands – overall a performance which many big firms would be more than happy with in the current economic climate. But of course Microsoft isn’t just any big firm. For one thing, as the world’s biggest software house it’s closely watched as a barometer of wider economic activity. And for another it has to stand comparison with Apple, whose results of late have been little short of stellar, thanks to the iPad and iPhone in particular. However well Microsoft does, it seems that Apple always steals its thunder.

But making meaningful comparisons isn’t easy – the two firms are not as similar as they appear. They may both be in the tech business but that’s about as far as it goes. Apple is really a consumer goods operation and relies on its famous wow factor and marketing flair to keep high street punters queuing up. Something it does better than almost any other company on the planet.

Microsoft, on the other hand, is across the whole range of tech markets – corporate and consumer, software and hardware, wholesale and retail. As such, its performance is inevitably less volatile, because at any given moment gains in one area are likely to be offset by losses in another. Thus the 55% rise in revenues at Microsoft’s entertainment and devices division (thanks to the Xbox and Kinect) – to nearly $4bn – compares with a paper fall in sales of its core Windows software from $7.19bn to $5.05bn. (Although, to be fair, the underlying performance of Windows was better than that figure suggests, as the previous year’s bumper sales include $1.7bn in deferred revenues.) Sales at its business division were up 24% too, thanks to the new version of Microsoft Office.

Its prospects for the future are strong – Windows 7 looks set to prove popular with business and consumer markets, thanks to its ability to run on anything from a smartphone to a server. And the Kinect’s clever motion-sensing technology could have a wide range of lucrative uses.

It may never be as cool as Apple – indeed it probably shouldn’t even try to be. But, in many ways, Microsoft looks more rounded, diverse and resilient than its Cupertino oppo at the moment – especially in view of Steve Jobs’ unlucky recurrent ill-health. We think there is still plenty of room for both of them.

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