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Microsoft Office 365 on pace to becoming billion dollar business

MCT/ AFR | May 3, 2013
Six months after the launch of Windows 8 and shortly after a quarterly earnings report that surprised some with its solidity, Microsoft watchers are asking: Is the company the slow-yet-steady tortoise that's gaining on the flashier hares of the business - the Googles and Apples? Or do the plunging PC market, lukewarm response to Windows 8, and still-minuscule presence in tablets and smartphones foretell an ominous future?

Microsoft Office 365 on pace to becoming billion dollar business

Six months after the launch of Windows 8 and shortly after a quarterly earnings report that surprised some with its solidity, Microsoft watchers are asking:

Is the company the slow-yet-steady tortoise that's gaining on the flashier hares of the business - the Googles and Apples?

Or do the plunging PC market, lukewarm response to Windows 8, and still-minuscule presence in tablets and smartphones foretell an ominous future?

And what should people make of recent news such as activist investor ValueAct Holdings' market-moving investment in Microsoft largely based on its cloud technology potential, official confirmation that the company is working on smaller Windows-based touch devices, and rumours of all the changes coming with "Blue," the wave of sweeping updates ahead for many Microsoft offerings?

The consensus among analysts seems to be that Microsoft is a company in transition, experiencing growing pains and pockets of great promise as it moves from dominance in a world centred on Windows and PCs to becoming a company that delivers services and devices.

While the "services" part of the equation is taking off - Office 365, the subscription model for Microsoft's Office suite, is on pace to become a $US1 billion business by the end of June, for instance - it's not doing as well on the "devices" side, other than with its Xbox console.

And while the growth curve for Windows is flattening, Office remains strong, and Microsoft's Server and Tools business, which encompasses products and services aimed at corporate use, continues to grow steadily each quarter.

"A lot of people fail to recognise that Microsoft has a lot of diversification," said Al Gillen, an analyst with research firm IDC. "If the Windows client business ceased to grow ever again, and I don't think that will happen, the other divisions in the company are moving along without being held back by the Windows business."

That said, the Windows business is still among the top revenue-generating divisions at Microsoft and perhaps the most closely associated with the company.

Revenue in the Windows division, after an accounting adjustment, was flat for Microsoft's latest reported quarter, which ended March 31.

Many analysts saw that as a relatively good performance, given that PC shipments went down about 11 per cent to 14 per cent during that quarter, according to research firms Gartner and IDC.

But veteran Microsoft analyst Rick Sherlund, with investment bank Nomura, points out that profits, after the adjustments, were down 20 per cent year-over-year in the division.

"The slow PC sales showed up in lower profits, which was masked on the revenue side in the form of the sale of hardware," Sherlund said.

 

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