By now you know the story. Microsoft released its earnings report for the fourth and final quarter of last year (which is Q2 FY2014) for the company. Revenue came in at $24.52 billion, and net income, $6.56 billion, translating to an earnings per share of 78 cents.
You can go over the report for specific details, but the long and short of it is that the technology titan managed to beat the going analyst consensus of $23.68 billion and 68 cents per share.
And it did so by quite some margin, at that. Strong overall results aside, the earnings report had several areas of interest that provide some hints at where the future lies for Microsoft, and where it needs to enhance its focus, going forward.
The Good Coach
Business is a team sport. And I personally believe the best coaches (or business leaders for that matter) are the ones that leave a team or a company in better condition than they found it. Steve Ballmer may have a reputation as a bean counter, rather than a true innovator, and there is some truth in it.
Financials may paint a very good picture, but exactly what condition he left the company in, will only be evident after he departs — years after he departs, in fact.
Maybe he overstayed his shelf life as a CEO, maybe he was slow to react to certain trends, and maybe he was so embroiled in fixing his Vista mistake with Windows 7 that he couldn’t see the forest beyond the trees. But with his reorganization plan, at least he has given himself a chance.
A chance to at least part ways with the company he loves so much in better shape than when he took over the reins from Bill Gates. And speaking of chances.
Cloudy with a Chance of Coins
Diversification is the name of the game — always has been, and always will be. Cloud was the next logical frontier for Microsoft, and though the company was not the first major player to enter the field, it has quickly become the number one contender.
And this cloud supremacy has now finally started to transcend to other services and products.
Skype is now pretty much powered by Windows Azure, the Office 365 family is growing by leaps and bounds (Office 365 Home Premium is at 3.5 million subscribers), the Xbox One has cloud in it DNA, and there is no stopping the Windows Azure platform proper.
Ultimately, whatever path Microsoft takes in the future, the cloud business is going to be at the front and center of it all, the middle of everything. Hardware, cloud, software. And vice versa.
Surface on the Surface
The Surface business in the last quarter was, once again, funny business. It’s hard enough breaking into a new market, and then stabilizing the sales and retail channels. But one area where Microsoft once again seemed to have put the guard down is international availability of its tablets.
In fact, forget international, the second generation slates were out of stock in the US quite often during the quarter. But despite that, there are enough signs of improvement — if not outright rejoice.
See, the total revenue from the original Surface RT and Surface Pro tablets in the first fiscal quarter of the year came in at $493 million. This time around it reached $893 million. So far so good. But revenue is usually only part of the story.
As this SEC filing reveals, the cost of revenue for the Surface lineup came in at $932 million, resulting in Microsoft losing some $39 million or so. Chump change in the overall scheme of thing, but still.
It just may take one (or two) more quarters for the Surface tablets to really start bringing in the dough.
Depending on your expectations, this much is a given that the ridiculous talks of an immediate (or near future) demise of the company are widely exaggerated. The latest financial results paint a positive picture overall, even if there is room for improvements in certain areas. Then again, there always is.
But Microsoft is on a track here, and sometimes that is all that matters. Just ask BlackBerry.
However, the road ahead will need to be treaded carefully, the new era that dawns comes laden with challenges. In most realities, this might well be the final quarter financial result under the Ballmer administration. A new CEO will marshal in a new age, a new thought process, a new drive.
So much so that this brand new year may just turn out to be a shadow of something interesting.