M$ – Clutching At Straws or Reorganizing?

“Windows DivisionWindows continued its transition in the evolving device market. This quarter, Microsoft saw businesses invest in the Windows platform with volume licensing revenue growing double-digits, and we estimate that the business PC market returned to modest growth. The consumer PC market remains challenged and declined again this quarter. During the quarter, both the distribution and geographic availability of the Surface RT and Surface Pro were expanded.Windows Division revenue increased $259 million, or 6%. Adjusting for the impact of the $540 million revenue deferral in the prior year related to the Windows Upgrade Offer, Windows Division revenue declined $281 million, or 6%. Increased commercial sales of Windows were largely offset by the impact on revenue of a decline in the x86 PC market. OEM revenue increased 1%, primarily reflecting the impact of the prior year deferral of $540 million related to the Windows Upgrade Offer, largely offset by the revenue impact from the decline in the x86 PC market. Excluding the impact of the Windows Upgrade Offer, OEM revenue decreased 15%, and was approximately 65% of total Windows Division revenue.Windows Division operating income decreased $1.3 billion, primarily due to higher cost of revenue and sales and marketing expenses, offset in part by revenue growth. Cost of revenue increased $1.2 billion primarily reflecting product costs associated with Surface and Windows 8, including the charge for Surface RT inventory adjustments of approximately $900 million. Sales and marketing expenses increased $344 million, reflecting advertising costs associated with Windows 8 and Surface.”

see 8K, EX-99.1.

“Windows Division non-GAAP revenue decreased 6% for the fourth quarter”

Operating income from the client division fell $1.3billion over last year. Not only are revenues down but the share of revenues are down and there was a big hit for writing down RT. See, I’ve been telling the world that the value of that other OS is negative and M$ confirmed that.

About Robert Pogson

I am a retired teacher in Canada. I taught in the subject areas where I have worked for almost forty years: maths, physics, chemistry and computers. I love hunting, fishing, picking berries and mushrooms, too.
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33 Responses to M$ – Clutching At Straws or Reorganizing?

  1. dougman says:

    SO what is Ballmer has billions, does not matter that how rich the pimp is, he cannot push his drugs onto the world anymore.

    True, OEMs may have bought into the current Windows phone, 8 and RT, but does this translate into physically sales?

    NOPE.

    Its like saying, GM sold a million cars, but then all those vehicles are setting on the dealers lots collecting dust with no sales, so they start by dropping “dumping” prices. Which proves my point.

  2. bw says:

    We are heading into another time frame of OS wars

    Dream on. Almost all of the money in OS product markets is Windows money. Apple makes a few bucks selling OSX updates.

    A few OEMs are buying Windows Phone, RT, or 8 and shipping devices using them. Most are either making their own OS completely (Apple, Rim) or using some internally modified version of Android.

    That was the sort of in-house market that existed in home computers in the days before IBM and Microsoft. Is there any parallel there?

  3. bw says:

    There has been talk of Gates coming back, but a man worth billions I seriously doubt that would happen

    You are aware that Ballmer has his own billions? It was a very good year for Microsoft, despite the fretting of the 1% who wanted even more.

  4. oiaohm says:

    dougman even if Microsoft took Bill Gates back does not make the waters Microsoft has to try to navigate any less of a problem.

    We are heading into another time frame of OS wars.

    As a lot of people have admitted carriers and phone produces try to make themselves unique. There is a limited number of unique features.

  5. dougman says:

    In the very near future, one will be able to run packaged apps on Chromebooks, so the lack of apps or this or that application will become moot.

    This will mean that one could run any Linux or Windows application on a Chromebook.

    Next….

    Ballmer as CEO and his so-called reorganization of M$ will do nothing. Until he is gone, M$ will continue to erode away.

    There has been talk of Gates coming back, but a man worth billions I seriously doubt that would happen. Put yourself in his shoes, would you go back? Very Unlikely….

    So where does this leave M$, a bag A$$ rudderless boat with no captain and no long-term plan.

  6. oiaohm says:

    Currently I have had my investments else where. bw by Microsoft standards it was not a record year. Dividends from Microsoft stock is normally up in a year of a successful OS release. This time you would say not successful by Microsoft standards.

    bw also please go and read the full report. It directly mentions changing over to a services model. This we can expect more pain to Microsoft bottom line.

  7. bw wrote, “I got mine at 28 and change.”

    Sell short. Today there may be a realization that M$ has no long-term plan to keep the cash-cows running. Mobile’s a flop. Cloud doesn’t rate a line-item. The office suite is tied to the OS which is staggering. The server is tied to the OS which is staggering. This is only the beginning of the downturn. The slope could become slippery and steep. Where is the upside in the longer term? Where is the revenue when those units which didn’t sell don’t get refreshed? Selling services requires working for a living at much lower margins.

  8. bw says:

    The sales volume was 248M shares, slightly less than 3% of their total and abut 5 times their average volume. Given the characteristics of such a move those shares were traded and re-traded during the day by the quick hitters and likely represent well under 1% of the outstanding stock. Did you sell your shares yesterday? I didn’t. I got mine at 28 and change.

    It was still a record year and the dividend isn’t at all threatened.

  9. oiaohm says:

    Yes the downturn in sales caught up with Microsoft exactly when I was expect it to. Bw I told you wait for 4Q. Yes 4Q there was not enough deferred income left to hide the losses.

    The scary part is how badly Microsoft is getting beat around just by Android.

    Something interesting Microsoft is now admitting to has to transition to a Services Model. Yes a normal Linux Distribution style model. The Linux world knows this is a lower income yielding path.

    Yes bw if you like it or not my projections were on the money.

  10. Oooh! Down 11% in one day. I guess the market doesn’t believe Ballmer any more than I do. 8.5 billion shares down $4 is -$34billion…

  11. matchrocket says:

    It looks like the time to sell your Microsoft stock was yesterday.

  12. oiaohm says:

    bw chromebooks are very limited locked down its very simple to throw them into developer mode then chroot something like Ubuntu.

    Chromebooks OS core is in fact not that disabled. What is the issue is the everything signed when not in developer mode that restricts chromebooks.

    matchrocket no chrooting debian/ubuntu on a chromebook does not require a separate partition. http://www.howtogeek.com/162120/how-to-install-ubuntu-linux-on-your-chromebook-with-crouton/

    Yes the Linux kernel is able to used signed binaries. Very little about a chromeos install is really custom.

  13. matchrocket says:

    bw wrote: ” thought that ChromeOS was a version of Linux. Is it disabled somehow?”

    ChromeBooks are a locked-down modified version of Gentoo Linux. That’s one, just one, of the reasons it’s so secure. Considered as the most secure system in general use.

  14. bw says:

    So you lied to him bw

    Are you sure? I thought that ChromeOS was a version of Linux. Is it disabled somehow?

    That’s a rather small sample, judging by your friendly, outgoing character…

    It is a small sample, but it is fairly inclusive of my world. Are you also suggesting that my sample is smaller than yours, due to my inability to match your much more expansive and effusive manner? Perhaps, but I have been trying to do much better than before. Just look at the icons here, I’m all smiles and you look rather glum.

  15. bw wrote, ” they are all still buying Windows PCs (or Macs). Not a Linux computer in sight. Nor a Chromebook either.”

    That’s a rather small sample, judging by your friendly, outgoing character…

    see StatCounter

  16. matchrocket says:

    bw wrote: “I told them that they would need to use Open Office or similar for a set of Word documents that I know he is a fanatic about preserving.”

    So you lied to him bw. Google provides their own office suite that can open any Word document, even the dreaded docx format. In fact, you can’t even install Open Office or Libre Office on a ChromeBook without creating a separate partition with another OS to put them on.

  17. bw says:

    I want users of PCs to be free of M$ and that’s happening.

    Where? Not in my neck of the woods. If I were at all concerned about users of PCs, it would be my family, friends, and neighbors and they are all still buying Windows PCs (or Macs). Not a Linux computer in sight. Nor a Chromebook either.

    One of my friends/neighbors did inquire about the wisdom of buying a Chromebook a few months ago, though. I told them that they would need to use Open Office or similar for a set of Word documents that I know he is a fanatic about preserving. He is not very daring and even subscribes to MSN because he is afraid to change his email address. That killed the deal right there and he bought an HP.

  18. oiaohm says:

    Deep-a-Grave OS/2 was able to run windows 3.11 applications. Nt workstation was popular in enterprise in the time of windows 95 as well.
    “Windows 3.1 and 95 which stormed the desktop, and which killed OS/2”
    This is wrong.

    Windows 3.1x, 95 and NT Workstation stormed the Desktop. What is left NT workstation line. NT Workstation was cheaper than OS/2.

  19. bw wrote, “All I pointed out was that Microsoft continues to grow”.

    All I pointed out was that M$’s desktop monopoly continues to decline. They can sell baskets in India for all I care about that. I want users of PCs to be free of M$ and that’s happening.

  20. bw wrote, “Switching to Linux would save that fee, but it would create expenses for support, which cannot come just from a cadre of benevolent volunteers sneering at “newbies” and saying RTFM as they are wont to do.”

    FUD! In my experience new users of GNU/Linux need a bit of help with the file-system and they are off to the races. If they need help they can just call on any kid like folks used to do for setting the clocks on VCRs. Munich found desktop-support calls dropped when they went to GNU/Linux. That is my experience too.

  21. bw says:

    Nonsense. The vast majority of consumers don’t even know this is possible, let alone feasible

    Whose fault is that? People certainly know about Macs, so why not about Linux? I think that one reason is that there really isn’t much of a fan club for Linux and what there is cannot muster the energy and focus to effectively evangelize its use, your own efforts notwithstanding.

    Another big reason is that the “advantages” that you frequently reference for Linux are not really selling points that resonate with potential buyers. You talk of “the Microsoft tax”, horrible malware, slow boot times, and limits of 20 PCs on a network as if anyone really cared. They do not.

    The OEMs pay, as far as I can tell, around $50 for a Windows license and that fits in with their existing support structure and provides their own system customers with what they expect to get with a new computer. Switching to Linux would save that fee, but it would create expenses for support, which cannot come just from a cadre of benevolent volunteers sneering at “newbies” and saying RTFM as they are wont to do. It also creates a nightmare for retail distribution by putting such diverse units into the flow and creating likely shortages of one and surpluses of another at many sales outlets. Retailers do not like that sort of thing.

    So with no compelling reason in the minds of buyers to use Linux and a lot of reasons for OEMs and retailers to shun it, it goes nowhere.

    Console yourself with the thought that Microsoft is not much of a factor in the phone or tablet business, at least yet. High hopes for Microsoft’s demise are not enough, in spite of the old song.

  22. bw says:

    I care nothing about M$’s gross revenue

    Maybe not, but you seem to care about Microsoft becoming a shadow of itself, relishing the thought. All I pointed out was that Microsoft continues to grow, albeit at a slower pace due to its aggregated size after 30 years.

  23. Deep-a-Grave says:

    Mr. Oiaohm, you are most certainly wrong. NT was able to run only OS 1.x apps, but it wasn’t NT which killed OS/2. It was Windows 3.1 and 95 which stormed the desktop, and which killed OS/2, as they were both cheaper, required less hardware, easier to develop for, and, had more apps available. Neither 3.1, nor 95 could run ANY OS/2 app whatsoever.

  24. ram says:

    The trouble with any American corporation is that their financial statements can be a complete fantasy and their is no way for the public to find out. If you do find out, and trade on that information then they call it “insider trading” and YOU go to jail, not the guys cooking the books.

  25. bw wrote, “You say this a lot, “dictate to everyone” that is, but it is simply not true. Anyone can get some alternative OS for their computer if they are willing to accept what is available and willing to accommodate the requirements for an alternative.”

    Nonsense. The vast majority of consumers don’t even know this is possible, let alone feasible. Many even think it’s illegal. Businesses usually have some techies who should know better but are too lazy to put any thought into migrating. These are huge barriers to entry, despite bw’s ignoring them. M$, recently, has dictated “secure boot”, various rules about file-formats, supported OS versions, and of course they get to name any price they think they can get away with. That last one is rapidly dissipating, thanks to real competition in the form of */Linux on ARM which M$ does not control.

  26. bw, going off on a tangent, wrote, “When was Microsoft’s biggest year ever? This year.”

    I care nothing about M$’s gross revenue. I care about the enslavement of users of PCs and servers needing to pay to use their hardware. That nonsense has to stop and M$’s faltering Windows Division is a very good sign of better things to come. Around 2005, M$ was very close to 95% of PCs. Today, counting legacy Intel/AMD64 PCs they are close to 60% of shipments. Today, counting ARMed thingies, they are around 30%. Freedom is happening and it’s accelerating. OEMs, consumers and retailers have already realized they don’t need M$. It’s only a matter of time before business figures it out. It’s true that businesses concentrate on their businesses rather than the esoterica of software but they do count the beans and they do see the price of Wintel so there is hope.

  27. oiaohm says:

    bw the big thing you are missing the the maintaining cost of a OS per year is written in the multi billion dollars.

    Linux client might be lowish. But you have to see how much of the Linux world is a shared core.

    bw the kernel.org yes the Linux kernel is consuming well over 1 billion dollars of investment per year.

    The total for something like redhat or ubuntu if the companies had to pay for it all them selves they would not exist. A linux distribution source code production costs per year is in the 10’s to 1000’s of billions per years.

    Linux client revenues might be light bw but Linux is not depending on that. Linux distributions don’t have to pay all the costs themselves. Microsoft other major competitor apple is also not paying all there costs. BSD source bases saving Apple quite a bit in places.

    bw 26 billion does not sound like much when you remember MS is having to pay for all their developers.

    You have missed the big problem linux 3.11 does not have the title Linux for Workgroups just as a joke.

    http://www.phoronix.com/scan.php?page=news_item&px=MTQwODk
    Remember windows 3.11 and OS/2 Warp was compatible. Linux kernel 3.11 will allow WIndows RT applications onto Linux.

    Question is how long before Linux 3.11 or latter appears in android and other arm Linux solutions.

    Yes people also forget early NT had a OS/2 subsystem for running OS/2 applications http://technet.microsoft.com/en-us/library/cc976528.aspx

    Yes we are in a history repeat. Windows was cheaper than OS/2. Windows could run most of the applications of OS/2 so it died.

    We risk watching the very same story repeat with Windows RT.

    Lot of hope is being put on Windows 8.1.

    bw does google need to make as much profit as Microsoft out a a OS. The answer is no. Why google ships a large percentage of the developer cost back to the hardware produces. Hardware makers are annoying happy with the control. Yes leads to suxing updates.

  28. bw says:

    M$ is a shadow of its former self

    You should read your own citations. When was Microsoft’s biggest year ever? This year. What was their second biggest year ever? Last year. They continue to grow and no one can point to any peak, so how is that a “shadow”?

  29. bw says:

    it is a reason not to be able to dictate to everyone what they must do with hardware they own

    You say this a lot, “dictate to everyone” that is, but it is simply not true. Anyone can get some alternative OS for their computer if they are willing to accept what is available and willing to accommodate the requirements for an alternative. In general, that means that they can buy a Mac or find somebody to build them a Linux computer or do it themselves. The only thing that prevents people from doing that is that it is generally more expensive to buy a Mac and more trouble to find a Linux vendor and a lot more trouble to build your own computer.

    Microsoft has been in the business for 30 years and that is a very long time in terms of computer evolution. They are deeply entrenched and the very definition of PC is applied to Wintel computers. Macs are PCs, sure, but they are called “Macs” not “PCs”. In the vernacular, there is no name for a Linux computer at all.

    All that Microsoft can dictate is the terms of use of the software that they sell licenses for. So far, their terms have been seen by buyers as far more attractive than whatever alternatives that they have considered. Else they would buy something else. It is like the jury in the Zimmerman trial. They look, think, and vote. Maybe not your way and maybe because someone didn’t use the right arguments or charges or whatever, but they make a decision based on what is before them. For PCs and OS, it is mostly Microsoft.

  30. bw wrote, “Windows operating revenue was only $9.5B, but that is hardly a reason to go out of the business”

    No, but it is a reason not to be able to dictate to everyone what they must do with hardware they own. Slowly but surely, M$ is being cut down to size.

    bw wrote, “Google’s sales of tech products revenues is a minor fraction of Microsoft’s, so you will have to be more specific here.”

    Google is advertising and growing and having new and better customers while M$ is a shadow of its former self, unable to release anything on time, unable to dictate to OEMs, unable to dictate to consumers and retailers…

    In M$’s own words: “”A computer on every desk and in every home, running Microsoft software.” This is the mission statement of Microsoft itself; it is the definition of the conditions under which Microsoft itself can declare overall victory.”

    In fact, M$ never reached what it considered was success and it is declining from the near thing. The only question is how low it will go. Business seems to be their only loyal customers but consumers are employees and BYOD, smart thingies, thin clients and web-applications are all chipping away at M$’s installed base.

    M$ leveraged its business and server divisions from the frailty of its client OS because it got a monopoly. When that monopoly is gone the others are sure to follow. All the governments of Europe are looking seriously at LibreOffice and GNU/Linux and Android/Linux. They aren’t looking at rolling out more slaves to M$.

    Assuming business remains loyal to M$, how long will they stick with licences for “7” and XP that are already paid up? Even the revenue stream from business is getting stretched thinner.

    Assuming M$ ever gets its act together for small cheap computers that sell, what will be its share and what will be the price of the licence? Competition is killing M$, just not as fast as I’d like.

  31. bw says:

    everything else was way down

    You struggle so hard to find some doom and gloom in the Microsoft numbers! Why is that?

    The decline in the current quarter to the segment numbers for Windows is due to the write-down of the RT product pricing that you gleefully noted previously I another thread. For the year, partly due to the RT issue and partly due to generally sagging sales of PCs, Windows operating revenue was only $9.5B, but that is hardly a reason to go out of the business. How many other entire companies in the world “only” have that much operating income? Certainly none of the companies that sell Linux client OS software. I would suspect that Linux client revenues would be less than even $9.5 million and even then that is not operating profit. Much ado about nothing as someone once said.

    Google is eating M$’s lunch

    What lunch would that be? There is no question that Google is the king of advertising revenue on the internet, but Microsoft is not an advertising agency at all and is, rather, a technical products company. Google’s sales of tech products revenues is a minor fraction of Microsoft’s, so you will have to be more specific here.

  32. bw wrote, “They have operating income of some $26+ billion dollars”.

    Client division operating income was $1.1billion, down from $2.4billion a year ago. Server and office suite were up a bit but everything else was way down. The whole ecosystem is sick. Businesses may like to throw money at M$ but the rest of the world is moving on. “on-line” is still actually losing money. The ecosystem where M$ is healthy is just a crack in the rock. There’s not much room to grow. Meanwhile, Google is eating M$’s lunch.

  33. bw says:

    I’ve been telling the world that the value of that other OS is negative and M$ confirmed that.

    How so? They have operating income of some $26+ billion dollars, the bulk of which is due to Windows acceptance far and wide. If that is down a little due to advanced age of the product line, so what? It is still a massive amount of profit and almost every corporation in the world can only dream of ever getting to the same level of success.

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