Microsoft Spins Q1, People Seem to Buy It

The general headline for the Microsoft earnings announcement seems to be “less profits, but better than analysts expected. Look at the numbers, and you might wonder what positive someone would have taken, other than a pitcher of pity.

The most obvious point is that in only one sector of its business, server and tools, did Microsoft improve its revenue standing. Even there the growth was an anemic 0.5 percent. Sales of Windows were down by 38.8 percent. But so were online services (5.8 percent), Office sales (11.1 percent), and gaming and entertainment (0.1 percent). The thing is, once outside of Windows and Office, Microsoft lost revenue in categories in which some of its competitors have gained.

That makes you wonder about some of the company’s statements:

• “We are very pleased with our performance this quarter and particularly by the strong consumer demand for Windows,” said Chris Liddell, chief financial officer at Microsoft. (What strong consumer demand? The category was down by more than a third.)
• “The worldwide launches of Windows 7, Exchange Server 2010 and Windows Server 2008 R2 are exciting milestones for Microsoft, our partners, and customers,” said Kevin Turner, chief operating officer at Microsoft. (Didn’t Microsoft just officially launch Windows 7 this week? How is that part of last quarter? And as for sales to OEMs ahead of the launch, how much Vista would they have had to buy instead? They have to put something on the machines they sell.)

Even though management was able to hem in costs enough to improve earnings, it was a highly disappointing quarter, and shows some of the real weakness that it has developed.