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Microsoft Earnings Bode Well for the Channel

Another quarter is in the books, and Microsoft's revenues and profits keep soaring. By now you've seen the headline numbers for the quarter that ended Dec. 31 -- nearly $20 billion in revenues, net income of $6.63 billion, 24 percent growth in Microsoft Business Division revenues on the back of Office 2010, 8 million Kinect sensors sold in the first 60 days, Windows 7 license sales hit 300 million and Internet Explorer 9 downloads crossed 20 million.

As analyst Allan B. Krans of Technology Business Research Inc. noted after Microsoft's announcement on Thursday, "Even as cloud becomes increasingly pronounced in Microsoft’s messaging to customers, the company is not taking its foot off the accelerator of core Windows and Office products, maintaining a long-held presence that drives large streams of revenue and profit."

Here are some tidbits that jumped out at me from the transcript of the earnings call:

* Nearly 90 percent of enterprise companies worldwide have started formal migrations to Windows 7, according to IDC data shared by Microsoft during the call.

* Revenues for premium editions of Windows Server and SQL Server grew double digits, and Microsoft has grown its share of the overall server market every quarter since Windows Server 2008 R2 launched in the year-ago quarter.

* Microsoft has one of the best lenses on the PC market in the industry. Here's what Bill Koefoed, general manager of investor relations, had to say about it: "We estimate close to 90 million PCs were sold globally, the biggest quarter ever, representing growth of 2 to 4 percent. Business PCs grew faster than consumer PCs as companies continued to refresh hardware and adopt Windows 7. Within consumer PCs, netbooks declined from their peak last year while notebook growth remained healthy."

* The Server and Tools Business also did well. Koefoed said, "Server and Tools ... posted 10 percent revenue growth. Non-annuity revenue grew roughly in-line with the underlying server hardware market, which we estimate grew high single digits. Multi-year license revenue growth was roughly 11 percent, and enterprise services revenue grew 9 percent." Can someone explain to me again why Bob Muglia needs to go?

* Microsoft credits the virtualization trend for driving double-digit growth in Microsoft System Center revenues and in Windows Server 2008 premium revenues.

* Lync growth was better than 20 percent for the quarter, and SharePoint 2010 and Dynamics CRM both had double-digit growth.

* Peter Klein, Microsoft CFO, expects a pretty good remainder of Microsoft's fiscal year, which concludes at the end of June. "According to various surveys, enterprise IT spending is forecasted to grow in 2011, and Windows 7 and Office 2010 remain among the highest priorities for CIOs. We remain confident in our ability to continue to grow our share of the IT spending market," Klein said. "We expect the business PC refresh cycle to continue. In terms of PC growth, we expect business to outpace consumer, and emerging markets to outpace developed markets."

In all, Microsoft earnings call made me feel more optimistic about 2011 for the Microsoft channel than I had been until now.

Posted by Scott Bekker on January 31, 2011 at 11:58 AM


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