Microsoft earnings blow everyone away; press angry because Ballmer was right

Microsoft has no CEO and they are killing it in business performance.  Looks like Steve Ballmer was right: the company isn’t in bad shape.  Maybe it was the dumb press that called for his head. Steve had a smile on his face today as Microsoft Corp. announced revenue of $24.52 billion for the quarter ending December 31, 2013. Gross margin, operating income, net income, and diluted earnings per share for the quarter were $16.24 billion, $7.97 billion, $6.56 billion, and $0.78 per share, respectively.

Maybe Microsoft should go without a CEO for a few more quarters. @fxshaw is smiling.

Blow out earnings highlights include strong financial gains over last year in enterprise services, Azure cloud, Office 365 generating profits of $6.6 billion on record quarterly revenue of $24.5 billion. The company sold 3.9 million Xbox Ones, business software is booming, the Surface is still alive and adapting, and commercial cloud services are gaining strength.

Microsoft is without a leader: a headless company, no captain on the ship.  Good thing that ship is sailing in warm waters with no icebergs in sight. They are a money machine.  Microsoft is and will for some time be an enterprise company.

The enterprise sector is hot and it’s not new to Microsoft.  The big story this year is the massive IT investments that are looming large.  This is highlighted well by ServiceNow’s CEO Frank Slootman, who wrote a great blog post today summarizing the state of the business/enterprise market:

ServiceNow’s Slootman state of enterprise IT: Lighting in a bottle

Why is so much of the IT management focus on costs, cutting costs, taking cost out? Why does IT seem primarily concerned with commoditizing infrastructure, squeezing and consolidating vendors, outsourcing as much as possible?

The answer is because IT is perceived as a commodity, or as a utility…power, dial tone, bandwidth. There is limited excitement to keeping the lights on until, of course, the lights are out.

The perception is that there isn’t much to be had (think innovation) other than getting the same service at lower cost. So, the culture around IT is increasingly cost-obsessed.

The reason is we are not giving the CEO anything they can get excited about, something they are dying to have and willing to throw money at to get it as soon as humanly possible.

Face it, cutting IT to the bone is not going to save the day or make the enterprise more competitive. And that is what the CEO is obsessing about.   So, think about what technology can do to turn the tables on the competition.

Let’s stop cutting costs as our principal focus and start innovating! What would blow your competition out of the water?

Think exciting, differentiated and not-done-before. Think catching lightning-in-a-bottle.

Bottom line:  Microsoft’s core business is enterprise IT and it is booming.  This will power other parts of their business.  Xbox isn’t too shabby as an anchor for the consumer angle.  Bing? That’s another story.

We’ve been following Microsoft since the ’80s.  Dave Vellante and I will break Microsoft down next week with full analysis on @theCUBE at the Open Compute Summit in San Jose.

According to Steve Ballmer:

“Our Commercial segment continues to outpace the overall market, and our Devices and Consumer segment had a great holiday quarter …  investments we are making in devices and services that deliver high-value experiences to our customers, and the work we are doing with our partners, are driving strong results and positioning us well for long-term growth.”

“We delivered record revenue as demand for our business offerings remains high and we made strong progress in our Devices and Consumer segment,” said Amy Hood, chief financial officer at Microsoft. “These results reflect our focus on execution, cost discipline, and long-term shareholder value as we continue to drive the strategic transformation of the company.”

Devices and Consumer revenue grew by 13% to $11.91 billion.

  • Windows OEM revenue declined 3%, reflecting strong 12% growth in Windows OEM Pro revenue, offset by continued softness in the consumer PC market.
  • Surface revenue more than doubled sequentially, from $400 million in the first quarter to $893 million in the second quarter.
  • The company sold 7.4 million Xbox console units into the retail channel, including 3.9 million Xbox One consoles and 3.5 million Xbox 360 consoles.
  • Bing search share grew to 18.2% and search advertising revenue grew 34%.

Commercial revenue grew by 10% to $12.67 billion.

  • SQL Server continued to gain market share with revenue growing double-digits.
  • System Center showed continued strength with double-digit revenue growth.
  • Commercial cloud services revenue more than doubled.
  • Office 365 commercial seats and Azure customers both grew triple-digits.

“We significantly outpaced enterprise IT spend [sic] as we continue to take share from our competitors by delivering the devices and services our customers need as they transition to the cloud,” said Kevin Turner, chief operating officer at Microsoft. “Our commercial cloud services revenue grew more than 100% year-over-year, as customers are embracing Office 365, Azure, and Dynamics CRM Online, and making long-term commitments to the Microsoft platform.”