Microsoft Has a Strong Quarter Despite PC Slowdown Fears

microMicrosoft reported quarterly earnings yesterday that both exceeded analysts’ estimates and relived fears among investors that a first quarter slump in PC sales would hurt Microsoft’s quarterly earnings and send its stock price plummeting.

The company’s shares rose 2.7 percent in after-hours trading.

Microsoft announced quarterly revenue of $20.49 billion for the quarter, up 18 percent from a year ago, and on par with estimates led by strong sales from its Windows and Office software products.

Net income was $6.1 billion, or 72 cents per share, up 18 percent from $5.1 billion a year ago and surpassing FactSet estimates of  68 cents.

The Microsoft Business Division which includes a brand new cloud based subscription service called Office 365, posted $6.32 billion of revenue, an 8 percent increase from the prior year period.

Last week, research firm IDC announced that global PC shipments dropped 14 percent in the first-quarter, representing the biggest decline since the firm began tracking data in 1994.

IDC was quick to blame Microsoft’s new touch enabled Windows 8 for the slowdown in PC sales.

IDC Program Vice President Bob McDonnell appeared yesterday on Bloomberg West and was questioned about his statement from last week when he said that “it’s not going to get any better soon.”

McDonnell said that the second quarter is going to be really tough. But he admitted that the second half of the year will be better.

“Second half what we need to see is what Intel talked about on their call and what Microsoft talked about on their call today. It’s going to be lower cost touch based systems as well as a wider availability of those touch systems. If we see that and, oh by the way, if Microsoft makes the changes in Windows 8.1 that I had recommended and now lots of other people are talking about and they may do, that could help as well.”

McDonnell recommends that Microsoft allow people to boot into desktop mode and bring back the start button to help them transition easier from Windows 7  to Windows 8 and decrease the dependence on having to have a touch screen.

“At this point the PC industry needs everything it can to drive people to reconsider PC’s.” McDonnell said.

Concerning Microsoft’s new Surface tablets, McDonnell explained that Microsoft should position themselves to show that they are a PC first and tablet second.

The Surface tablet sells for $499 but it does not include the Touch Cover, which doubles as a keyboard.

The cover is an extra $119.99 or $129.99 for a thicker cover.

Last week, Microsoft announced that they are developing a new lineup of its Surface tablets, including a smaller 7-inch version that is expected to go into mass production later this year that will help the company to better compete against Apple’s new 7.9 inch iPad Mini tablet and Google’s 7-inch Nexus tablet.

Microsoft also has plans to develop a new wrist worn watch device.

Three days ago, the Wall St. Journal reported that Microsoft is working with suppliers on designs for a new touch enabled watch device.

Yesterday reported that the wrist worn device that Microsoft plans to develop is in the prototype phase, with teams who have worked on Xbox accessories and the Kinect sensor.

The future watch device will come equipped with the same magnetic connector that Microsoft uses on its Surface tablets.


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