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Microsoft masks Windows, Office performance with new reporting format

Gregg Keizer | Oct. 29, 2013
Revamped financial reports 'purposefully ... cover the ailing Windows client business,' says IDC analyst

"Lumping all software products into two broad categories makes it difficult, if not impossible, to see how any individual software product is doing," Gillen said of the D&C and Commercial divisions.

Some of what boosted Windows revenue in the quarter, Singh said, was not sustainable after the next six months.

"They are getting volume license renewals as XP heads to retirement, which will certainly also help in Q4 [2013] and Q1 [2014]," Singh said, referring to the last push by enterprises to ditch Windows XP and migrate to Windows 7. Sales of Windows licenses to PC makers for business PCs were also up 6% in the quarter that ended Sept. 30, another indication of a late rush to retire XP.

And while Singh was impressed by Microsoft's results, even more hinges on the current quarter, which ends Dec. 31, if it's to prove to investors that the new devices-and-services strategy is bearing fruit.

"On the consumer side, the next quarter, where more PC shipments are recorded than any other, is the very most important in PCs and also in tablets," Singh said. "Q1 is also important, as the post-holiday quarter where consumers look for discounts and sellers get rid of excess inventory."

Microsoft's own Surface tablet strategy will be especially on the line. If the company can sell significant numbers of the tablets, it will show that the move was smart.

"[We saw] a lot of progress in sales execution on Surface in particular this quarter," said Hood last week. "And that does give us more confidence about our ability to execute again well in [Q4]. In particular, as you know, our RT did do quite well this quarter. And I look forward to seeing that continue with the Surface 2 device, as well, in holiday."

Hood tacitly acknowledged that Surface Pro — the more expensive model powered by Windows 8 Pro, not the touch-only Windows RT, which runs on the Surface RT and the new Surface 2 —did poorly during the quarter. "With Surface Pro, we saw some customers delay purchase in anticipation of Surface Pro 2, which delivers significantly improved battery and processor performance," Hood said Thursday.

"I think they're being a bit too optimistic about the Surface and the fourth quarter," countered Singh. "I don't think it's going to be as great as they're thinking." She based her analysis on what she sees as very tough competition in the tablet market from Apple's new iPad and iPad Mini models, from inexpensive Chromebooks from the likes of HP, and even from Microsoft's own OEM partners.

Hood noted that the 32GB Surface RT sold particularly well in the consumer and education markets; those are prime territories for the iPad and Chromebooks, respectively, Singh argued.


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