Despite predictions of Windows' slow and painful death, Microsoft defied the analysts with its third-quarter earnings report by posting stronger-than-expected sales for the venerable operating system. Those sales helped push a 6 percent revenue increase in the quarter.
The Windows and Windows Live groups brought in $4.6 billion in the quarter. That is a 4 percent increase over the year-ago period and is just $112 million less than the fourth quarter of 2011. Fourth quarters are traditionally one of the strongest of the year due to PCs shipping during the holiday shopping season.
Double-Digit Operating-Income Growth
The Microsoft Business Division reported $5.81 billion in third-quarter revenue, a 9 percent increase from the year-ago period. Microsoft said that increase reflects the continued strength of Office 2010 with businesses and consumers. For its part, Microsoft Dynamics posted an 11 percent revenue increase from the prior year period, with Dynamics CRM revenue growing more than 30 percent.
The Online Services Division reported revenue of $707 million, a 6 percent increase from the prior year period. That reduced its operating loss by about $300 million.
The Server & Tools business posted $4.57 billion in third-quarter revenue, a 14 percent increase from the prior year period, driven by double-digit revenue growth in SQL Server and more than 20 percent growth in System Center revenue.
"We saw strong demand for our business desktop and infrastructure offerings," said Peter Klein, chief financial officer at Microsoft. "Solid revenue growth and continued cost discipline drove double-digit operating income growth."
Windows Still Breathing
We asked Rob Enderle, principal analyst at the Enderle Group and a long-time Microsoft observer, for this thoughts on the company's earnings at large, and particularly the performance of Windows. He told us he's not really surprised at the news that Windows is seeing gains.
"As we've certainly seen in previous generations, the predictions of the demise of popular powerful technology is often premature. Right now iPads and smartphones are mostly accessories to personal computers. They are not replacements for them," Enderle said.
"At some future point they might become replacements but they haven't crossed that particular chasm yet. The end result is that people continue to buy and as the economy improves sales of the dominant platform are going to improve with it."
Microsoft's Entertainment & Devices Division posted revenue of $1.62 billion, a decrease of 16 percent from the prior period due to a soft gaming console market. Xbox remained the top-selling console in the U.S. for the 15th consecutive month, and the company announced new television content partners and experiences for its 40 million Xbox LIVE members.
"I think Microsoft's earnings showcased a certain amount of weakness on the media side altogether in terms of technology take-up," Enderle said. "It's probably a blip as people wrap their heads around the next generation of media delivery tools. But it's something to keep your eye on."