This week at Microsoft: Earnings, Azure, and 7″ tablets

It was a busy week in the realm of Microsoft – thank god that isn’t an MMORPG – so we shall have to be summary in our notes today. Check your coffee mug, is it full? We have some ground to cover.

Before we dive in, double check that you are following TNW’s Microsoft channel on Facebook, and Twitter. Now, let’s get financial.

Earnings

This week Microsoft reported its financial performance from the first calendar quarter, which is its third fiscal quarter. The company had revenue of $20.49 billion, and earnings per share of $0.72, which meant that it missing by a fraction on its revenue, but beat estimates in terms of its profitability.

Here’s the division by division breakdown:

• The Windows division had revenue of $5.7 billion, up 23%.
• The Business division had revenue of $6.32 billion, up 8%.
• The Entertainment and Devices Division had revenue of $2.53 billion, up 56%.
• The Online Services division had revenue of $832 million, up 18%.
• The Server & Tools division had revenue of $5.04 billion, up 11%.

Quite obviously, the world had its eyes fixed on the Windows figure: Would Windows 8 drag down the business group and materially harm Microsoft? As it turns out, only perhaps. On a non-GAAP basis, once you strip out deferred – and now realized – revenue, the division had flat top line for the quarter on a year over year basis.

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So, no change. Given that the PC market unit volume fell between 11 and 13.9% in the first quarter, that is almost a feat. Windows Blue cometh, and the next quarter of PC shipments should be more than illustrative.

Small Tablets

On its earnings conference call, Microsoft confirmed that it is working with OEM partners to sell smaller, Windows 8-based tablets – this will probably be Windows RT, if you were curious – at lower price points to better approach the market. So, the 7 inch tablets that have been rumored are likely on the way.

Microsoft pegged the timeline for such devices as in the next few months. That puts their potential start directly at the Build event that will happen in June. This is probably not coincidence.

With new devices and an improved operating system – let’s see what Windows 8.1 brings before we judge – Microsoft will be in a stronger stance to take on the tablet market. It needs the boost. That, and an improved Surface line could do Microsoft well in the holiday season.

Ask yourself this: Do you want to use Windows 8 on a 7 inch display?

Azure Pricing

Microsoft’s Azure service announced two things of note this week: Its Infrastructure as a Service product is now generally available, and Azure as whole has promised to match – or beat – Amazon’s EWS pricing on basic computing and storage tasks.

As the pledge has no end date, presumably from this moment forward, Microsoft and Amazon will be on functional price parity. Amazon has been aggressive in cutting the price of its cloud computing and storage products. The question now becomes if either firm is willing to price at a loss to harm their competitor.

In that form of war, Microsoft’s cash advantage is a real weapon.

Xbox’s ATM

Sure, Microsoft sold more than 1 million Xbox 360 consoles in the first quarter, and yes, the company grew its Xbox Live subscriber pool to 18% to 46 million, but would you believe that transactional revenue from Xbox service users in fact outstrips total subscription revenue?

According to TNW’s rough math, this implies that the average Live user generates $30 per year in transactional revenue for Microsoft. That was higher than I expected. Microsoft’s next console – likely out this year – matters, but what the company has managed to create in terms of a content bucket that it can dock fees from is a money machine.

Peace, Klein

Finally, TNW managed to secure memos sent by CEO Steve Ballmer and departing-CFO Peter Klein concerning Klein’s departure. He’s out shortly, but likely not before he finds a replacement to help with the hand-off.

From Ballmer’s memo, for fun:

I’m sure all of you have seen media coverage from the last two weeks. As I said in our earnings release, our long term bets on the cloud are paying off, and while the mobile device environment is challenging, the decisions we made with Windows 8 and Windows Phone 8 set us up well for long term growth.

That is enough Microsoft for now. Mix a gibson and get weekending.

Top Image Credit: ToddABishop