Microsoft Reports Modest Profits In Q3 Despite Lagging PC Sales
April 19, 2013

Microsoft Reports Modest Profits In Q3 Despite Lagging PC Sales

Enid Burns for — Your Universe Online

After declining PC sales, and several reports showing fewer sales in the future, Microsoft saw the writing on the wall and changed its strategy. The company made investments in the cloud, changed its software licensing structure, and set up long-term software contracts with businesses to diversify its revenues.

Microsoft reported its earnings at close of market on Thursday, stating a quarterly revenue of $20.49 billion, for the quarter ending March 31, 2013, a 19 percent increase; this is considered the software titan's third quarter due Microsoft accounting.

Revenue sources included several initiatives such as the Windows Upgrade offer, Office Upgrade Offer and pre-sales, as well as revenue from the Entertainment and Devices Division Video Game Deferral. One factor, the European Commission fine, offset some of Microsoft's profits.

"The bold bets we made on cloud services are paying off as people increasingly choose Microsoft services including Office 365, Windows Azure, Xbox LIVE, and Skype," said Steve Ballmer, chief executive officer of Microsoft, in a corporate statement. "While there is still work to do, we are optimistic that the bets we've made on Windows devices position us well for the long-term."

One sign that Microsoft isn't entirely positive on its financial outlook is the exit of the company's CFO. Peter Klein will leave Microsoft at the end of June, Reuters reports. He has held his post at the company for 3 1/2 years, and has been with the company for 11 years. Microsoft said it would name a new CFO in the next few weeks, and will come from within the organization.

"The CFO departure is a little bit troubling," said Brendan Barnicle, analyst at Pacific Crest Securities, in the Reuters article. "We've had a lot of executives leaving Microsoft recently. This also makes a departure by Steve Ballmer less likely. It would be very unusual to have a CEO leave soon after a CFO departure."

Business must go on, and Microsoft has new strategies in place to weather the market where fewer consumers are replacing their PCs, in lieu of mobile devices such as tablets and even smartphones. During its earnings report Microsoft discussed its shift in strategy towards selling more long-term software licenses to big businesses.

"Microsoft has successfully transitioned into an enterprise software company and these results show that, because the strength of server and tools and the actual way they sell licenses to business is making up for the missing PC sales," Fort Pitt Capital analyst Kim Caughey said, in the Reuters article.

Revenue for the Windows division rose 23 percent to $5.7 billion, up from $4.63 billion a year earlier, the New York Times reports.

"The company reported better financial performance than the overall PC sector for several reasons. Its Windows sales for the quarter included the delayed recognition of revenue from an upgrade offer that allowed Microsoft customers last year to receive the latest Windows operating system, Windows 8, after it was released last fall. Without that deferred revenue, sales in Microsoft's Windows division were flat," The New York Times quoted Microsoft as saying, in its earnings report.