Amazingly (not), Microsoft's fourth-quarter figures beat the street.
The expression will be horribly familiar to you, because companies that are reasonably under control habitually beat the Wall Street estimates, quarter by quarter. But only just. The analysts are going to get confused, annoyed and embarrassed if you go chalking up numbers way in excess of the ones they have guesstimated on the basis of the briefings you have given them.
But the fact Microsoft came in at about where everybody expected it to, partially masks a number of underlying factors which may develop into clear trends over the next few quarters. Office sales seem to be falling, Windows turnover is flagging, and investment income made a pretty spectacular contribution to the total pie. If it had not been for this, the situation might have been approaching what you would call grim.
Watch out, there's a new trend about
Various Microsoft statements tend to confirm that there are developing trends here. A post-millennium fall in sales has hit turnover, the transition to Windows 2000 has caused more trouble, and businesses may be holding off moving to Windows 2000 until various server-based goodies, such as SQL Server and Exchange 2000, are shipped, and/or until Service Pack 1 is shipped. But we all know that most businesses do not jump over to a new operating system, and the presence of Microsoft BackOffice systems in corporations is considerably less substantial than Microsoft would have us believe.
So that sounds a bit like 'it's all going to be great when we ship these great new products and take over the world', right? Microsoft needs a sustained period of demand for PCs in business for its Windows turnover to accelerate, and Microsoft is also pushing for the 'joint use' of Windows 2000 and Office 2000 in business. That is, both of them have to be the standard platform, thus giving the standard per-seat revenue a huge kick.
This is hopeful, optimistic stuff. Although Windows 2000 sales may not have been huge, they will have been increasing as more new PCs go out with the software. A client PC running Windows 2000 instead of Windows 98 will produce more turnover for Microsoft.
The overall trend for Microsoft is for it to squeeze more bucks per seat while the increase in the number of new seats being deployed tapers off. Maybe this means the beginning of the end for the PC boom, or just that customers will recognise that workhorse machines don't have to get faster, and that Office 97 is perfectly fine so why pay for the Office 2000 upgrade?
Heavy dependence on PC sales
The bottom line is that Microsoft's turnover - and that of the entire PC industry - depends heavily on PC sales. If the PC goes away, Microsoft is in trouble. When alternative devices kick in, it might still be able to make money, but only in a small part of a much bigger market, unless it can evolve. It is trying to do this in wireless, via the internet and with the Microsoft.Net strategy.
You might believe it is early to judge this evolutionary process as a failure, but components of the big picture already exist and have existed for years. However, they have not taken over the world.
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