Home Why Microsoft’s Earnings Report Doesn’t Reveal How Windows 8 Is Doing

Why Microsoft’s Earnings Report Doesn’t Reveal How Windows 8 Is Doing

Microsoft reported an unexpected boost in both profits and revenue within its Windows division for the fourth quarter, and yet little of that had to do with real demand for Windows 8.

Well, possibly. Or maybe not. Or perhaps we’re completely wrong.

(See Microsoft Earnings Surprise: Windows Soars, While Office Stuggles.)

That’s because Microsoft revealed very few details about the success or failure of Windows 8 in its quarterly earnings call on Thursday afternoon, and what little company executives divulged had already been disclosed. Yes, we know that Microsoft has sold more than 60 million Windows 8 licenses to date. Big deal. Windows marketing chief Tami Reller said as much earlier this month.

The big statement from Peter Klein, Microsoft’s chief financial officer, on Windows 8 simply reiterated what most Microsoft followers already knew:

“With the launch in October, we collectively took the first of many steps in changing the way people use technology at work and at play,” Klein said. “Since then, the number of Windows 8 certified systems has nearly doubled, the number of apps in the Windows store has quadrupled, and Windows users have downloaded over 100 million apps. To date, we have sold over 60 million licenses of Windows 8. Our partners, including OEM hardware manufacturers, app developers, and retailers, have worked hard to get us to where we are today. It’s early days and an ambitious endeavor like this takes time. Together with our partners, we remain focused on fully delivering the promise of Windows 8.”

Why Windows Won

Microsoft’s Windows and Windows Live revenue grew 24% to $5.88 billion, while the division’s profits grew 14% to $3.3 billion. Why? Three reasons, according to Klein, were responsible for the bulk of the revenue increase:

  1. Retail upgrades.
  2. Surface sales.
  3. Multi-year license agreements struck with enterprises.

Some, like ex-Microsoft analyst Matt Rosoff, suspected that the bulk of the Windows division’s sudden boost in revenues was money that had been deferred from pre-sales of Windows 8 before the launch. Subtract that, and the 24% increase drops to 11%. According to Microsoft, sales to equipment makers outpaced the x86 PC market – no surprise there, given that the third-quarter PC market dropped.

Probably the most important news is that enterprise volume license sales – multi-year license deals that are typically signed for three years – were up “double digits” Klein said. (We don’t know, however, if they were for Windows 7 or Windows 8.) More than 60% of all corporate PCs currently run Windows 7, which is an indication of strong enterprise support.

Unfortunately, Microsoft said virtually nothing about its Surface tablet, including sales figures. And how many consumers took advantage of the cheap $39.99 Windows 7-to-8 upgrade, or the $19.99 upgrade for those who bought a new PC before Windows 8 was released? We may never know.

“The Microsoft financials show that they did indeed profit well from the work they did on Windows 8,” Patrick Moorhead, principal with Moor Insights, said in an email. “Unfortunately their [manufacturing partners] can’t say the same. The fact is, the jury is still out on Windows 8 and Windows Phone 8 and Microsoft has a long way to go to show that both operating systems are strategically a success.”

We Know Nothink

What else did we learn that we already knew? For one thing, we know that Klein is a master at dodging questions. Give credit to Walter Pritchard of Citigroup, who asked one of the more adroit questions: In the months following the Windows 8 launch, what has Microsoft learned about the importance of price (in terms of the Surface tablet, we presume) in terms of driving sales, and will Microsoft eventually lower prices?

Mr. Klein?

“We learned a lot… about the price points customers are looking for from their devices,” Klein returned. “We saw some really great demand for touch devices for the market. In some cases we didn’t have the supply we needed to satisfy that demand. I think from a price point we learned what we always suspected: there’s segmentation and differentiation. One of the powers of the Windows ecosystem is obviously, a variety of devices and form factors and experiences at a variety of price points. And I think we learned from experience that that continues to be important, and as I said we continue to work closely with our chip partners as well as OEMs to bring the right mix of devices, which to your point, mean the right set of touch devices at the right price point of the unique needs of the individual. I think we learned a lot about that and one of the things you’ll see is a greater variety of devices at a bigger variety of price points to meet the different needs of consumers.”

Stop. The. Presses.

Unfortunately, the only Microsoft exec that can actually be goaded into something resembling an answer wasn’t on the call. Microsoft chief executive Steve Ballmer was absent (“he pulled a Sinofsky!” one friend quipped) but made an appearance via press release:

“Our big, bold ambition to reimagine Windows as well as launch Surface and Windows Phone 8 has sparked growing enthusiasm with our customers and unprecedented opportunity and creativity with our partners and developers. With new Windows devices, including Surface Pro, and the new Office on the horizon, we’ll continue to drive excitement for the Windows ecosystem…”

What We Do Know

Microsoft did provide some additional… well, they weren’t “facts,” exactly.

  • Sales of Windows Phones are up four times compared to last year, whatever that figure was. 
  • Online ad revenue grew 15% (although the Online Division lost money, again: $283 million)
  • If one factored out $788 million of deferred Office upgrade revenue, Microsoft’s Business Division grew revenues by 3%.
  • Deferring $380 million in video game revenue (for add-on packs and the like) meant that Entertainment revenue was down only 2%, not 11%.
  • The Windows upgrade offer expires at the end of February, when Microsoft will recongnize $1.1 billion in revenue – giving a nice little boost to Microsoft’s third fiscal quarter Windows revenues, too.

According to Klein, Microsoft is positioned for growth across a “massive” market, from tablets to laptops, to ultrabooks and all-in-ones.

OK, we know the potential is there. Microsoft has been saying that for months. So what’s going on now?

About ReadWrite’s Editorial Process

The ReadWrite Editorial policy involves closely monitoring the tech industry for major developments, new product launches, AI breakthroughs, video game releases and other newsworthy events. Editors assign relevant stories to staff writers or freelance contributors with expertise in each particular topic area. Before publication, articles go through a rigorous round of editing for accuracy, clarity, and to ensure adherence to ReadWrite's style guidelines.

Get the biggest tech headlines of the day delivered to your inbox

    By signing up, you agree to our Terms and Privacy Policy. Unsubscribe anytime.

    Tech News

    Explore the latest in tech with our Tech News. We cut through the noise for concise, relevant updates, keeping you informed about the rapidly evolving tech landscape with curated content that separates signal from noise.

    In-Depth Tech Stories

    Explore tech impact in In-Depth Stories. Narrative data journalism offers comprehensive analyses, revealing stories behind data. Understand industry trends for a deeper perspective on tech's intricate relationships with society.

    Expert Reviews

    Empower decisions with Expert Reviews, merging industry expertise and insightful analysis. Delve into tech intricacies, get the best deals, and stay ahead with our trustworthy guide to navigating the ever-changing tech market.