It’s a very interesting time in the history of Microsoft. Traditionally the company has been driven primarily by revenue from it Windows and Windows Live products but figures released yesterday show that revenue from its Entertainment and Devices Division is propping up its overall figures to a much greater extent than previously.
Microsoft announced its second quarter earnings to the end of December 2010 amid boasts of record revenue and earnings per share. However when you look at the figures a little closer an interesting picture of the software giant emerges. Microsoft posted a $6.63 billion profit on record revenues of $19.95 billion for the quarter, which is more or less the same as last year, when it recorded a $6.66 billion profit on $19 billion in revenue. Prior to the results being announced, analysts had been predicting a much larger shortfall in profits. While these figures seem to be stable enough, a closer look shows that Windows revenue has fallen by 30 percent compared to 2009 - though that was partly due to Windows 7 launch in that quarter.
Windows and Windows Live revenue fell to $5.05 billion, down 30 percent but the gap was made up by increased sales of the Kinect and Xbox products. The Kinect since launch has proven a huge success selling over eight million units far exceeding Microsoft’s expectations. Indeed such was the strength of Kinect and Xbox sales, the Entertainment and Devices Division revenues grew by a massive 55 percent bolstering the poor showing from Windows. In 2009 the gap between the two revenue streams was $4.8 billion and is now only $1.3 billion and should these trends continue Entertainment and Devices could overtake Windows as Microsoft’s cash cow.
Looking back, it is therefore no surprise that Steve Ballmer spent so much time talking up the Kinect and Xbox (and little else) at his keynote speech at CES recently. There was no real mention of Windows Phone 7 in the results hinting that the newly launched mobile phone platform had little impact on the overall financial results.