Microsoft sees record revenues but Windows sales remain sluggish

Microsoft has announced record revenues for its latest financial quarter of $17.37bn, a seven per cent year-on-year increase, but sales of Windows continue to disappoint.

The Windows and Windows Live Division achieved revenue of $4.87bn, but this represented just a two per cent increase over the prior period, as PC sales continue to tumble.

Furthermore, the firm's Online Services Division, which incorporates the Bing search engine and various MSN services, lost another $494m in the quarter, although this shows some improvement on the $558m lost in the same quarter in 2010.

Microsoft's major growth came from its Business Division, which saw year-on-year revenue increase eight per cent to $5.62bn while its Server & Tools division saw growth of 10 per cent, up to $4.25bn for the quarter.

Its Entertainment and Devices division saw mixed results, with sales up nine per cent compared to the same quarter in 2010, but overall revenues were down by $34m to $352m.

Forrester principal analyst Andrew Bartels told V3 that Microsoft's attempts to blame its sluggish Windows sales on a slowdown in the entire PC market ignored the continuing strength of Apple's own PC range.

"The Windows-Intel world is being badly dented by Apple, especially on the consumer side of things, due to both the success of the iPad, but also with MacBooks proving popular," he said.

"Microsoft is performing well in the business space, though, and has the potential to remain strong, but it needs to continue appealing to businesses while also re-capturing the interest of consumers, in a way that doesn't risk alienating either group."

Another major issue for Microsoft is that Apple's "service wrap", which sees it own all aspects of a product including the software, hardware and the after-sales support, is highly compelling to consumers.

"Microsoft's model of providing the software to hardware manufacturers, and they then let someone else take care of sales, is under attack by Apple's success," he said.

Bartels said this may force Microsoft to consider following the same strategy it undertook with its Xbox product and buy a PC vendor with which it could integrate its software, although he stressed this was purely conjecture at present.