Microsoft's 2Q earnings dip despite Windows 8 lift

Published on NewsOK Modified: January 24, 2013 at 6:35 pm •  Published: January 24, 2013

SAN FRANCISCO (AP) — Microsoft's latest quarterly earnings slipped, even as the world's largest software maker showed modest progress adapting to a shift away from the personal computers that have been its financial foundation for decades.

The results announced Thursday are the first to include Windows 8. The program is a dramatic overhaul of the Microsoft Corp. operating system that powers most PCs. Windows 8 came out Oct. 26 with slightly more than two months left in Microsoft's fiscal second quarter.

Microsoft is counting on Windows 8 to help the company extend its franchise into tablet computers while still reaping revenue from a new breed of PCs. The redesigned software displays applications in a mosaic of interactive tiles instead of a staid menu. It can be controlled by touching on a display screen, as well as the traditional method of using a keyboard and a mouse.

Although sales of Windows 8 haven't been as impressive as investors hoped, revenue in Microsoft's Windows division climbed 24 percent from the previous year. That includes sales that had to be deferred from earlier quarters because the purchases were made before Windows 8's release.

When Windows 8 finally hit the market, Microsoft also unveiled its own tablet computer, Surface, as a showcase for the operating system. Microsoft didn't disclose Thursday how many Surface devices were sold in the October-December period.

"I don't think they want to provide that because it won't be impressive," technology analyst Patrick Moorhead said.

Analysts have estimated Microsoft sold 750,000 to 1 million of the Surface units during the quarter, far below the nearly 23 million iPads that Apple said it shipped during the same period.

Microsoft booked its Surface sales in the Window division, accounting for some of the gains from the previous year. The Redmond, Wash., company is trying to get the Surface into more hands by releasing the device in 14 more countries and coming out with a more sophisticated version that can handle all Microsoft programs. The new model, called Surface Pro, will debut Feb. 9. The one already out runs a streamlined version of Windows 8 called RT.

Analysts say it's still far too early to reach any definitive conclusions about Windows 8 prospects because it will take time for people to get used to the new system. What's more, the companies that buy most Windows machines typically wait a year or two before changing to a new version of the operating system to ensure all the bugs are worked out.

"I kind of like the Windows segment," BGC Financial analyst Colin Gillis said, adding that the 24 percent growth was "a little stronger than expected."

But another Microsoft division that includes another big moneymaker — the company's Office suite of software — didn't fare also well. Revenue in the Office division declined 10 percent, a shortfall that may have spooked some investors. Analyst Josh Olson of Edward Jones said he believes many of Microsoft's corporate customers may have held off on buying Office because a new version of that program is scheduled to come out early this year. Microsoft ended December with $788 million in deferred Office revenue. Most, if not all, that money is expected to be booked before the end of Microsoft's fiscal year in June.