Online Services still looks like a money pit, and modelling suggests that while PC revenues are improving, profits aren't.
Following on from Microsoft's blockbuster financial results on Thursday night, a little closer look at Microsoft's Online Services - which continues to resemble a hole that simply eats up everything that gets thrown into it. Especially money.
Here's the chart:
Any way you slice it, that isn't looking good. Revenue is roughly flat and losses are continuing at a greater level than revenues - so for the past quarter, revenue was $62m and the losses were 728m.
True, Microsoft is investing heavily both in its cloud services (which are part of Online Services) - Office 365 has had a generally positive reception - but at some point the supertanker either has to turn around or it is going to fall into a black hole and start really sucking everything in (to mix metaphors in a terrible way).
Analysts saw some positives in the fact that revenue had increased sequentlally for the quarter, but as the graph shows it's about 20% down from the peak times, which were in October 2006 - June 2007 (which covers the large three quarters in the middle).
And let's turn too to my predictions about Windows revenues and profits, from the blogpost a few days ago.
Back then, pondering Microsoft's claim to have sold 400m Windows 7 licences, I calculated, based on past figures from Microsoft's financials:
Going by Microsoft's own financial results (whose fourth-quarter figures are coming up next week), the three-year average for revenue per Windows PC sold is $56.47, and profit is $39.91.
Plug those in to two scenarios and the following emerges for the Windows division:
• 75m PCs sold: revenue: $4.23bn; profit $2.99bn
• 80m PCs sold: revenue: $4.52bn; profit: $3.2bn.
In the event, we know that there were a total of 81.2m (Gartner) or 80.4 (IDC) Windows PCs sold in the quarter. Call it 80.8m for convenience. By my maths you would then expect the Windows Division to have had revenues of $4.56bn and profits of $3.22bn.
In the event, it was (drum roll) $4.74bn and profit $2.94bn. Revenues higher (4% than the model), profits lower (9% than the model).
Why might that be? Because prices of Windows are being pushed down, even as sales are increasing. This is the China effect - that there's more piracy in China, but it's also the place (along with India and other Asian countries) where sales are booming.
Still, Microsoft can rely on Office, which only needs an installed base now heading towards 2bn to make it money reliably, even if Windows falters.
Meanwhile Apple announced that it had sold 1m copies of OSX Lion in its first day. That's quite a lot. Of course, now you can start arguing on whether that's catching up with Windows 7 (quite a long way to go) or getting a head-start on Windows 8. From the appearances of the two, I think it's more like the latter. And what will Microsoft's per-PC revenues and profits look like by the time Windows 8 is ready?
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Source: http://www.guardian.co.uk/technology/blog/2011/jul/22/microsoft-bing-pc-sales-analysis
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