Interesting. Looks like MS is going through the same transition that IBM went through as the IBM PC became commoditized and they switched to consulting and annuity based software sales. I wonder if this trend continues, whether MS would exit the consumer and client markets. Also looks like Office is starting to take a beating.

That's two stuns in two days.

I'm looking forward to the time when these analyses actually reflect the real world.

The bad economy is a red herring. The real reason for the 32% decline in company profits is competition.

The Server and Tools division may have greater revenue than client but it made less profit. This shows the effect of competition in the market.

Netbooks also exist in a market which has competition so Microsoft have to reduce their prices. 16% revenue was lost but PC sales were only down 6. This means that roughly 10% of the lost profit was because of lower priced SKUs (ie competition).

I notice they also talk about cost cutting, but they have actually got less profitable in the last year. Remember the billion savings that Ballmer announced a few years ago? They must have kicked in by now yet the profitability is dropping.

Why no mention of how Windows 7 is going to save Client? And why do the shareholders not ask for Ballmers head? Remember the billions he spend repurchasing stock at about $30?

Second wave has not hit yet. Netbooks are currently mostly intel based. Arm based netbooks will start feeding into the market. To be followed in third way by mips based netbooks.

Both with longer battery lives than there x86 equals. Both unable to run Windows 7 or XP.

Nettop experiments are more to find out of arm and mips processors can be pushed onto the desktop as well.

There is even a wave heading in the direction of the servers. MS has taken there eye of the ball. If they don't get there eye back on the ball they will be hit hard.

Another interesting analysis.
Microsoft's Tough Third Quarter.

http://www.businessweek.com/the_thread/techbeat/archives/2009/04/microsofts_toug.html?chan=top+news_top+news+index+-+temp_top+story
Quote:
A day after Apple seemed to shrug off the world economic woes with impressive quarterly earnings, Microsoft showed that it’s in no ways immune. While analysts expected revenues of $14.1 billion for the quarter ended March 30, Microsoft delivered just $13.65 billion—a 6% decline from the year before. Earnings per share were $.33, well below the $.39 Wall Street was looking for. Net income, which included $710 million in onetime charges, fell by nearly a third, to $3 billion.

Taken together, the quarterly numbers reflect the scary trends facing the company. Sales of its Windows PC software fell 16%—not just because of falling unit sales, but increased sales of cheaper versions that run on low-cost “netbooks.” (There’s not enough Lauren’s out there just yet, it seems.) But the server and tools business, which sells back-office gear that increasingly resides out on the Internet in data centers, rose from $3.2 billion to $3.4 billion. It’s clear that at a time when customers are watching their pennies, they’re investing less in PCs that formed the basis of the company’s lucrative monopolies—and spending more on geat that’s used in “the cloud”, where the company faces competition from the likes of IBM, Google and now Oracle, should its proposed acquisition of Sun Microsystems go through. It’s safe to say that how people spend money during these tough times is a good indicator of where people are likely to find value with their IT dollars.

---------

Could this explain MS' Shills DESPAIR?

IS it only the Economic conditions (The bad economy)

Let's see:

Amazon beats Q1 sales, profit estimates, shares up
reuters.com/article/rbssRetailSpecialty/idUSN2336278120090423
-------------

Apple Shares Rise After Positive 2Q Earnings Surprise
online.wsj.com/article/BT-CO-20090423-712158.html

--------------------------
GOOGLE ANNOUNCES FIRST QUARTER 2009 RESULTS

MOUNTAIN VIEW, Calif. – April 16, 2009 - Google Inc. (NASDAQ: GOOG) today announced financial results for the quarter ended March 31, 2009.

Google reported revenues of $5.51 billion for the quarter ended March 31, 2009, an increase of 6% compared to the first quarter of 2008 and a decrease of 3% compared to the fourth quarter of 2008. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the first quarter of 2009, TAC totaled $1.44 billion, or 27% of advertising revenues.
--------------

Apparently it is something more than 'only the Economic conditions'

As a XMSFT this is not very surprising results. Server and tools has the best product and business management at MS. People internally know that. As some of the commnents S&T just is not the cash cow Microsoft can grow on, it is a pillar but not a SteveB money machine. Steven and BillV will put a good product out with Windows 7, but is it to late to the game. To correct one comment Windows 7 run very well on Netbooks, I have test several. I would hope since Apple has looked the other way on Netbook, calling the iPhone and ITouch a like instrument MS has a chance to catch a market. The question are they ready to ride the wave? Not sure... still with the E&D miss and the complete ride off of online I would bet major change will be happening over fiscal close in June. Trust me...

As a XMSFT this is not very surprising results. Server and tools has the best product and business management at MS. People internally know that. As some of the commnents S&T just is not the cash cow Microsoft can grow on, it is a pillar but not a SteveB money machine. Steven and BillV will put a good product out with Windows 7, but is it to late to the game. To correct one comment Windows 7 run very well on Netbooks, I have test several. I would hope since Apple has looked the other way on Netbook, calling the iPhone and ITouch a like instrument MS has a chance to catch a market. The question are they ready to ride the wave? Not sure... still with the E&D miss and the complete ride off of online I would bet major change will be happening over fiscal close in June. Trust me...

oiaohm says:
"Second wave has not hit yet. Netbooks are currently mostly intel based. Arm based netbooks will start feeding into the market."

Have to agree with that. Also even the M$ spokesman said that the next quarter is expected to also be bad.

oiaohm also says:
"To be followed in third way by mips based netbooks."

Knew about the Chinese mips cpu's, but did not know they were getting to this point also like the ARM. It will be interesting. Fully expect when M$ comes out of the depression that it will be a smaller company.

It will be great to see the non-x86 netbooks come out, both for the cost and battery life benefits. Not to mention that it is less likely for Microsoft to be able to dictate arbitrary limitations on the hardware specs of the new netbooks like I've heard they do to the x86 ones.

That man Ballmer is a genius! His deal to net $7 per netbook for XP is finally bearing fruit. Sure it's $20-$40 less than what they got from typical OEM licenses, but hey when your ridin' that wave you can't take your eyes off the prize. Now that he has them hooked on the lowball pricing, Ballmer can savor the reality of getting that whopping $7 for Windows 7 on future netbook deals!

Don't try this at home kids, savvy deals like this are best handled by pro-fesh-uh-nul CEOs like Steve Ballmer.

Read splashtop licensing some time. Its 1 cent per unit.

So $7 dollars MS is getting way above market price for embedded OS. Yes future netbooks will want cheaper.

No one asking the right question either why is the server department up.

I expect you will find that Windows terminal services is in more use by companies converting to Linux.

Really cutting amount of MS client income 1/5 would be a valid long term for cast for how much money there is in that market. Even 1/5 is optimistic.

I have not said the worse yet. The worse mortgage debt fueled problems will hit in 2010 we have only see the first wave of that too. New MS Office has been delayed into that zone. Windows 7 release forecast puts it straight in the path of the next wave of money problems. We are in the calm before the storm at the moment. All companies should be making profit right now if they expect to live.

The ARM and MIPS makers can see that people will be cash stripped so products have to be made as cheep as able. Low cost low revenue and hope to sell massive amounts.

On the PC side, Microsoft noted that the overall decline in unit shipments was thanks only to Netbooks, which now make up 10 percent of total PC sales.

Problem is: Netbooks are expected to boom, doubling year after year, while regular laptops are expected to decline.

Or, put in another way: people are going to buy more and more laptops at netbook price.

Either way, that's bad news for Microsoft.

oiaohm : MS claim that sales of SQL Server boosted the server figures. That sounds plausible to me.

What is strange to me is that investors are supposedly so happy because MS are cutting costs, yet the report says that those savings are mostly down to them not being fined/sued so much this year.

"General and administrative expenses decreased $1.4 billion or 61%, primarily due to decreased costs for legal settlements and legal contingencies, partially offset by increased headcount-related expenses."

"We incurred $57 million of legal charges during the three months and $90 million during the nine months ended March 31, 2009, as compared with $1.5 billion of legal charges during the three months and $1.8 billion during the nine months ended March 31, 2008."

So, "EU did not fine us this year" is the reason for their decreased costs (and therefore better profits).

I agree with billybob - competition has a lot to do with it. It's difficult to maintain the very high monopoly profits when there is real competition around.

Thanks to the industry aiming for the low-cost netbooks (and finally making brand new computers affordable for some people), MS have taken quite a big hit. If the rumors are true about ARM-11 netbooks MS is in for big big trouble. WinCE will run on ARM, but the application base is just not there, whereas more or less the same versions of Free software have been running on x86 and ARM for the past 8 years or so. Translation: you'll get OpenOffice, FireFox, multimedia players, and various other tools and toys ready to go on ARM/Linux but not WinCE. I must add that I had a few projects that used WinCE - it was an absolute nuisance programming because of the extremely poor C library compliance (and even worse for those who use C++). The ARM was quite a capable machine even in 2003 but the restrictions of the development environment reminded me more of programming for a PC in the early to mid 1980s.

Going back to the figures, looking at "Online Services", can you say "Holy Sinkhole Batman!" The expenses (losses) more than doubled??? If I were a stakeholder, Ballmer will have a hard time convincing me that's a good thing (tm). It's Ballmer who'd be dodging flying chairs.

Isn't -226 better than -575 in online services?

$1.4 billion in not having to pay up. Think if MS had paid that there profits would have been only 1/3 not 2/3 of past month.

MS profits are way down on where they should be. MS has no option bar to cut costs. Lack of blood loss reductions have done nothing. Simple fact MS profits have been on a constant downwards slope. Problem here cut some things MS is doomed.

Cutting the black hole of Online Services is hard. That takes out MSN and Hotmail and MS rigging of netcraft. Basically remove Online Services and there numbers in netcraft would drop massively over night. Ok that is if netcraft is still standing. Thinking netcraft is part of MS Online Services.

With an economy like this, the numbers are not surprising.

I'm surprised MS's stock price was up a buck and a half today. That means the market was expecting the results to be far worse. Apparently wall street is taking note of some of these factors like netbooks and open source. Suspect next week as things sink in, the stock will start to slide again. Any bets on when it hits $10.00?

chips. Have you tried out Ubuntu 9.04? Wow! Now that ought to do in Windows 7! I'm afraid that if enough users gave it a try, Windows 7 will be a bigger bust than it already will be.

Crack me up... MS does not have any real competition in terms of economic warfare.. they could buy out all their competition with cash and it would put a small dent in their cash reserves.. you anti microsoft folks are just dreaming..

Crack me up... MS does not have any real competition in terms of economic warfare.. they could buy out all their competition with cash and it would put a small dent in their cash reserves.. you anti microsoft folks are just dreaming..

Another reason for buying a Netbook with the ARM cpu is the low power/long battery translate into low heat output as well. Since these devices don't need cpu fans, or heat sinks, they (ARM) should run very cool indeed. Not like Intel based laptops, (especially those running Vista) that you should use a cooler board underneath in order to run it in your lap. The Arm netbook, might be the perfect portable to use in the lap, without frying oneself. Perfect for watching TV with the old Lady and computing at the same time.

How much would Linux cost to buy?

Cash didn't really help with Yahoo did it? If they cannot even buy Yahoo without resorting to shares and a loan, then how could they buy the entire industry?

Oracle is worth 5 times Microsoft's cash.

I think Steve prefers to remove the competitions air supply rather than buying them. Looks like Microsoft is the one having it's air supply removed.

Maybe Bill is going to buy the competition with all the money that he is making by selling MSFT?

Canonical optimizes Ubuntu 9.04 Linux distribution for netbooks:

www.infoworld.com/d/open-source/canonical-optimizes-linux-distribution-netbooks-862?source=NLC-DAILY

arstechnica.com/open-source/news/2009/04/the-jackalope-arrives-ubuntu-904-officially-released.ars

Not too shabby for a version that is still in beta.

Not only will ARM/Linux Netbooks run cooler, but use less power, which could result in slightly lower power bills, which actually could pay for the ARM Netbook several times over the course of its lifetime. The cost savings in power bills as opposed to the INTEL/M$ laptops power drains that is. While most people will not notice this small cost savings, still it is there, and should be promoted as a benefit.

A finial thought: Beware of Gypsies, and those who espouse their ideas:
"I have 100 billion dollars... You realize I could spend 3 million dollars a day, every day, for the next 100 years? And that's if I don't make another dime. Tell you what-I'll buy your right arm for a million dollars. I give you a million bucks, and I get to sever your arm right here." Bill Gates...................

Certainly one who I would fear.

Ok, so now its time to discuss Joe Wilcox's article. Hopefully, Joe's 2nd part of this will be a lot better, because I see that Joe seemed to miss most of what this should have been about.

Joe starts off by saying: "In a stunning turnabout, Microsoft's Server and Tools division reported greater revenue than the Windows Client division."

How like Joe, to pick the only tiny positive element of near inconsequential near worthless importance out of all the figures, to make a centerpiece of his article. If not for this one line near the end of his article: "With the exception of Server and Tools, the quarter was pure carnage," people might not have had any idea that MS had a horrendous quarter at all.

Joe cannot even bring himself to say that profits declined overall by 32%. Instead he words it this way: "Meanwhile, operating income declined 32 percent and earnings per share by 30 percent." Referring to the only link of the only site that claims profit only decreased by 30% instead of the 32% that every other site claims. Maybe Joe needs to further explain that one??? Now if you want to play word games and say that profit on share dividends decreased by X amount, fine, but get us the correct overall amount. There is no need to protect Microsoft and their fanbois here, report the truth. And the main fact in this article should be the 32%. Only you and the MS mouthpiece apologist for CNET make that same lame link to the 30% figure. So will the decrease in MS profits affect the advertising and budgets at eweek Joe? Will eweek still promote Windows Seven without MS money? Or maybe things are not that bad?

Other parts which Joe conveniently ignores, (hopefully including in part 2???) is the Microsoft spokesman saying next quarter will be bad also. And no mention of what the next generation of Netbooks will do to further cripple the profits of Microsoft either.

And last Joe says: "The expected mass move to Seven is more likely to increase the percentage of sales from annuity licensing, something Microsoft has wanted for Windows for a long time. "

Fat chance of that Joe. What was the figure, 83 or 87% of businesses have not plan to deploy Seven in its first year? And many plan to move to alternatives. Plus since Seven is just Vista, it will only come for most home users when they actually buy a new computer. This means that SEVEN/VISTA doesn't have drivers for most older hardware that XP and Linux will both run. So in effect, both Businesses and Home users will not "upgrade" without buying new computers, which is going be slow going in a middle of a depression that looks to be getting worse.

Microsoft Gets Cracked and Defaced (Again)

http://boycottnovell.com/2009/04/22/microsoft-cracked-and-defaced/

"Summary: Microsoft loses control of MSN New Zealand

THERE ARE many examples just like that, e.g. [*], but this one just happens to be the latest. This is something to bear in mind when Microsoft raves about security. Not even Microsoft can keep its own Web sites secure using its very own software which it supposedly masters and keeps up to date."

"Referring to the only link of the only site that claims profit only decreased by 30% instead of the 32% that every other site claims. Maybe Joe needs to further explain that one???"

Maybe I can try...

The 2 numbers refer to different figures, one is decrease in operating income (profit) and the other is drop in EPS.

http://en.wikipedia.org/wiki/Earnings_per_share

The difference between the two numbers is related to the number of shares issued. I think they bought some back in the last year so EPS is a lower drop.

The real figure that everyone understands is profit, also called operating income. EPS is more for investors.

The rest I agree with, Joe somehow paints it to be a good result. Maybe he is just link baiting?

"Microsoft's Server and Tools division reported greater revenue than the Windows Client division."

That's a bit like comparing 7 to Vista and saying it is better.

The actual report contains some real gems.

"Cash flow from operations decreased $2.3 billion from the first nine months of fiscal year 2008 to $15.2 billion due to payment of approximately $3.1 billion to the IRS during the first quarter of fiscal year 2009 as a result of our settlement of the 2000-2003 audit examination."

Someone 'forgot' to pay their taxes again.

Pegatron and Freescale team for low-power, ultra-cheap netbooks and nettops

http://www.engadget.com/2009/01/09/pegatron-and-freescale-team-for-low-power-ultra-cheap-netbooks/

"The Linux-running laptops boast 8.9-inch screens, 8 hour battery life, 8GB of storage and projected retail prices around $199, while the nettop holds similar power in a pico-style form factor. Under the hood is Freescale's brand new ARM i.MX515 processor, which is a 1GHz chip that's described as basically being three times faster than the iPhone. The win here is that the chip draws very little power and generates very little heat, allowing Pegatron to squeeze impressive battery life out of a very thin form factor. Freescale is working with Ubuntu to prep an ARM-Linux distro, which will hit in May, and Adobe will have an ARM happy version of Flash 10 sometime this year. Supplementing the processor are chips for DSP, 2D, 3D and 720p acceleration, which switch on and off as needed -- we saw the computer in action playing 720p video smoothly while drawing a mere 0.5 watts and not even feeling warm to the touch. The limitation here is obviously straight-up processing power -- it's not very impressive, and certainly slower than Intel's Atom -- but for running an optimized Linux build and surfing the web or watching a vid, Pegatron and Freescale might've just found a new portability sweetspot. They're hoping to have an OEM pick these up around May or June sometime."

chips microsoft hating moron. start your own damn microsoft-hate site. you can call it microsoft-hate.com. your only purpose here is to prop up luser o.s. go away.

Joe, please ban the linux spam, especially chips. all he ever does is rip on microsoft. seriously, Joe, he must be banned from this site.

I wish to apologize for my uncivilized behaviour. I am an immature child (windows user) and will never embarrass myself on this site ever again.

@RidleyX,

Well, I must agree. All this Linux talk must stop. Rubbing Microsoft's face in talk of Linux's superiority and free and open nature only makes Windows look worse than it is. And shining a light on Microsoft's shortcomings by constantly talking about superior alternatives simply must stop, and stop now.

However, the evil, vile, filthy, and obscene language on this blog must be allowed to continue. After all, it is perfectly suited to Microsoft's business practices and software. Like sewage goes with a sewer. Like pain and death goes with war. So vile obscene immature language goes with Microsoft.

I now admit that I see the light.

Again, please ban chips. His drivel is nothing but spam

MS does not have any real competition in terms of economic warfare.. they could buy out all their competition with cash and it would put a small dent in their cash reserves.. you anti microsoft folks are just dreaming..

@Teo: actually, the point of this article is that it appears if things keep going the way they are, MS won't be able to buy diddly-squat, let alone wage "economic warfare". (Note to Ridley) Which, when juxtaposed against the inferior quality of their operating system, is as it should be; consumers eventually wisen-up to snake-oil salesmen - which is why they have to move on from town to town!