Microsoft’s New Products Move Away from the Desktop

According to Gartner’s recent estimates, worldwide PC shipments during the first quarter this year grew 1.9% over the year to 89 million units. The results are a pleasant surprise, considering the 1.2% decline that was projected by Gartner. Shipment increases were driven by growth of 6.7% growth in the EMEA and 2% in the Asia/Pacific markets, where shipments grew to 28.2 million and 30.3 million units, respectively. Japan is also seeing strong recovery following the earthquake last year, and shipments grew 11.5% to 4.4 million units. However, the Americas were weak markets, with PC shipments falling 3.5% over the year to 15.5 million units in the U.S. and Latin America showing a 3.2% decline to 9 million units.

Microsoft’s Financials
Strong PC sales are helping improve performance for Windows manufacturer Microsoft (NASDAQ:MSFT). The company’s Q3 revenues of $17.41 billion grew 6% over the year and were ahead of the market’s projected $17.18 billion. EPS of $0.60 was also ahead of the Street’s targeted $0.57.

By segment, improved PC sales helped to increase revenues from Windows, which reported a 4% increase over the year to $4.62 billion. Online revenues grew 6% to $0.71 billion, and Business services revenues were up 9% to $5.81 billion, while the Server and Tools business saw impressive 14% growth to $4.57 billion. Entertainment division revenues, however, fell 16% over the year to $1.62 billion because of the weak console gaming market.

Windows 8 and Office 15 Mark a Change in Strategy
The year 2012 is a crucial one for Microsoft as they prepare to release several new products, with Windows 8 being among the most anticipated. The touchscreen OS version will help them address the company’s gap in the notebook and tablet segments. Analysts believe that with the new version, Microsoft will also be able to address the corporate tablet market, which was also moving toward Apple devices. Windows 8 is expected to hit the market this October.

Office 15 is another big product release, the public beta version of which is expected this summer. Microsoft is expected to put Office 15 on sale by next year. Office 15 is expected to offer a redesigned interface and will integrate the PC and mobile Office versions to cater to the requirements of touch-based tablets and notebooks. Microsoft is also expected to add a subscription-based revenue model with Office 15 by integrating it with a subscriber fee-based cloud support feature. The service will offer integrated cloud-based storage on Microsoft SkyDrive that will let users store documents in the cloud and access them on supported devices using their Office credentials.

After a period of stellar performance, Xbox sales are waning. The company reported selling 1.4 million Xbox 360 consoles this quarter, a steep decline of 48% over the year. Analysts believe that Microsoft will announce their plans for a new gaming console by the end of 2012 and release the new console by 2013 but are concerned about the weak performance of the current console. The gaming console market has been “soft” primarily on account of devices like Apple’s iPad eating into the share.

Microsoft is also working on a new Web version of their newly acquired Skype so that users can connect using a Web browser instead of having to install the Skype software or app. The move will simplify the use of Skype, and Microsoft expects it to help push Skype’s current user base of more than 750 million to more than one billion.

The strong product lineup is helping drive up their stock, which has already gained more than 25% year to date. Their stock is trading at 52-week highs of $32.12, with a market capitalization of $269.83 billion.