Microsoft’s Windows revenue fell from $4.65 billion in last year’s quarter to $4.45 billion in the most recent period. That does not seem like too much of a drop, but Windows is the flagship business of the company. A global rotation away from PCs and toward tablets and smartphones will limit the ability of Windows to recover.
The news from Microsoft’s business-to-business units was much better. The Business Division’s revenue rose from $4.34 billion to $5.25 billion. It is now the largest division at Microsoft and its most profitable with segment profits of $3.17 billions to Window’s $2.76 billion. The Servers and Tools operation is nearly as large as Windows. It has revenue of $4.1 billion in the first quarter and is growing quickly
Microsoft’s revenue for the first quarter was $16.43 billion. Oracle’s are just above $9 billion. But, Oracle’s growth rate is faster. Oracle’s market cap is $179 billion to Microsoft’s $224 billion. And, Oracle’s shares are up 35% in the last year. Microsoft’s are down 13%.
Microsoft has begun to shift its emphasis to Windows Mobile as a way to offset a drop in the sales of PC-based products. It has also started to market cloud based products to compete with offerings from firms like Google (NASDAQ: GOOG). Each of these two efforts is a long-shot, particularly an assault on the smartphone OS industry which is already dominated by Apple (NASDAQ: AAPL) and Android.
Microsoft not only has its own strong enterprise businesses; It has $50 billion in cash. That is enough for it to buy several business-to-business firms like Salesforce.com (NYSE: CRM), which has annual revenue of close to $2 billion.
Microsoft could stake its future on the search business, game consoles, and a migration of Windows to portable devices. Its chances of becoming a dominant force in the enterprise business are much better.
Douglas A. McIntyre
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