Microsoft Earnings Report Fiscal Q2 2011

[AlphaWolf]

Wlll I'm sure wm6 and its clones made lots of money in the past, and I expect WP7 to make money, even though I don't think it'll be able to surpass the iphone or android, it should be profitable.

I doubt wm6 made anything that would show up on a 9 digit balance sheet.

 

[eastmen]

wp 7 will do more as its released on mroe carriers. in the states its only avalible on at&t which is really their dumbest mistake. It was and is over shadowed by the iphone. They should have launched on cmda markets in the states on sprint and verizon which were were andriod markets . They could have sloted there and pushed as something diffrent.

 

[Squilliam]

I would expect that by the end of the 2012 financial year the EDD may be one of the big divisions at Microsoft. Assuming that they can continue their WP7 growth and their Xbox 360 revenue expansion they ought to start doing well. Beyond this perhaps they can finally get the surface PCs to the market in a number large enough to start developing a software eco-system around the large format touch screen devices because IIRC they have a new model which is only 5 inches thick! I always thought that the best new avenue for Microsoft to take their software and hardware would be in educational software since they are a well trusted brand and education represents not only further lock-in for Windows/Office products at school but new sources of recurring revenue since kids have to buy the new education products every year they attend school.

 

[mrcorbo]

wp 7 will do more as its released on mroe carriers. in the states its only avalible on at&t which is really their dumbest mistake. It was and is over shadowed by the iphone. They should have launched on cmda markets in the states on sprint and verizon which were were andriod markets . They could have sloted there and pushed as something diffrent.

It was a better bet from a global standpoint to focus on GSM first. Also, they launched on both AT&T and T-Mobile (for what it's worth).

 

[eastmen]

It was a better bet from a global standpoint to focus on GSM first. Also, they launched on both AT&T and T-Mobile (for what it's worth).

Its ms , they should have hired people just for the cdma verison. Here in the states there are more cdma customers than anything else. Both up till now have had lack luster high end phones.

Verizon has the droids but none are as big as the iphone.

Sprint had the evo 4 g.

If they went to sprint they would have had them pushing windows 7 phones till at least this summer and it would have been their biggest phone series on the network and it would have fleshed out sprints line up

 

[mrcorbo]

Its ms , they should have hired people just for the cdma verison.

The issue wasn't manpower it was time. Look at all of the features that they cut on release (to later be released in a patch) to make sure they made their launch window. They couldn't afford to have this product slip, so they narrowed the scope of the project. The larger the project the higher the chance there would be development problems that delayed the launch.

Here in the states there are more cdma customers than anything else. Both up till now have had lack luster high end phones.

As you mention, Verizon and Sprint both had Android phones that were equivalent if not superior to the entire launch lineup of WP7 phones. And Android is still ahead of WP7 in most ways.

Verizon has the droids but none are as big as the iphone.

You know what's going to be as big as the Iphone on Verizon? The Iphone on Verizon.

If they went to sprint they would have had them pushing windows 7 phones till at least this summer and it would have been their biggest phone series on the network and it would have fleshed out sprints line up

Sprint don't look like the "fleshing out" type. They seem to tend to focus on one or two models at the high end. And, of course, Sprint is all about WiMax on its high-end phones. Yet a third wireless standard they would have had to have supported.

Lastly, the manufacturers had to make the phones. You think it would have been easy for MS and their hardware partners to get that many different products to market all at the same time?

 

[eastmen]

The issue wasn't manpower it was time. Look at all of the features that they cut on release (to later be released in a patch) to make sure they made their launch window. They couldn't afford to have this product slip, so they narrowed the scope of the project. The larger the project the higher the chance there would be development problems that delayed the launch.

More man power means more things getting done. Look the cmda verisons are coming in a few months. If they doubled or trippled the team working on the cdma implementation they could have had it ready for nov .

As you mention, Verizon and Sprint both had Android phones that were equivalent if not superior to the entire launch lineup of WP7 phones. And Android is still ahead of WP7 in most ways.

Except unlike iphone its splintered and there are multiple phones at each carrier. MS would be able to offer alternatives to those devices

You know what's going to be as big as the Iphone on Verizon? The Iphone on Verizon.

Which didn't exist in nov . A cdma verison would have gotten MS a good 4 months before the iphone launched. Now anything they do will play second fiddle to the iphone launch , perhaps putting them in an even worse postion than they were in on at&t

Sprint don't look like the "fleshing out" type. They seem to tend to focus on one or two models at the high end. And, of course, Sprint is all about WiMax on its high-end phones. Yet a third wireless standard they would have had to have supported.

You could still get away with 3g phones on sprint. 4g is very limited and only avalible in about 40 markets.

in a few weeks sprint will be showing off their 3D phone and once again MS will be playing second fiddle to a diffrent phone platform

Lastly, the manufacturers had to make the phones. You think it would have been easy for MS and their hardware partners to get that many different products to market all at the same time?

Why ? HTC launched a nubmer of phones last last holiday on all the carriers.

The hd7 has been shown in complete form since december behind closed doors and is only waiting for the software to be done for a launch on sprint.



Look at it this way , now instead of MS launching on two networks with zero big phones at the time , they will be launching right behind a big phone on eac h of the networks (iphone on verizon , 3d phone on sprint)

 

[Silent_Buddha]

I would expect that by the end of the 2012 financial year the EDD may be one of the big divisions at Microsoft. Assuming that they can continue their WP7 growth and their Xbox 360 revenue expansion they ought to start doing well. Beyond this perhaps they can finally get the surface PCs to the market in a number large enough to start developing a software eco-system around the large format touch screen devices because IIRC they have a new model which is only 5 inches thick! I always thought that the best new avenue for Microsoft to take their software and hardware would be in educational software since they are a well trusted brand and education represents not only further lock-in for Windows/Office products at school but new sources of recurring revenue since kids have to buy the new education products every year they attend school.

Well, they can make surface devices that are 4 inches thick now instead of requiring basically a full table kiosk. That will do wonders for potential adoption assuming the market is there for it.

It also now features pixelsense which basically has each pixel in the display able to determine what is above it.

Surface 2.0 is pretty damn amazing and a huge evolution of the Surface technology.

http://www.engadget.com/2011/01/27/microsofts-surface-becomes-the-worlds-biggest-remote-control-f/

Pure awesomeness. I'd love to get one but it's just a tad too expensive for me.

Regards,
SB

 

[mrcorbo]

More man power means more things getting done. Look the cmda verisons are coming in a few months. If they doubled or trippled the team working on the cdma implementation they could have had it ready for nov .

And added another layer of coordination, communication and planning. Larger projects take more planning and planning takes time.

Except unlike iphone its splintered and there are multiple phones at each carrier. MS would be able to offer alternatives to those devices

The fragmentation is a result of the rapid development. It really hasn't seemed to be a problem for them and I personally feel that having multiple form factors is an advantage (one shared by WP7).

Which didn't exist in nov . A cdma verison would have gotten MS a good 4 months before the iphone launched. Now anything they do will play second fiddle to the iphone launch , perhaps putting them in an even worse postion than they were in on at&t

The point I was making is that the only thing that was going to be as big as the IPhone on Verizon was the IPhone itself. Verizon's Droid series has been undeniably successful and the Epic 4G has had a major impact on Sprint's fortunes. I don't think that measuring the success of these devices using the IPhone as a standard is very useful.

You could still get away with 3g phones on sprint. 4g is very limited and only avalible in about 40 markets.

No. You really can't---unless you're the IPhone.

in a few weeks sprint will be showing off their 3D phone and once again MS will be playing second fiddle to a diffrent phone platform

Assuming people care about a 3D phone, that may be true. I sure don't.

Why ? HTC launched a nubmer of phones last last holiday on all the carriers.

Those are evolutions of existing designs, in most cases running the same software. Not the same as getting a whole new OS to run on multiple hardware platforms. There's a reason why, at a core level, the WP7 devices released so far are nearly identical.

The hd7 has been shown in complete form since december behind closed doors and is only waiting for the software to be done for a launch on sprint.

???? The HD7 is out and has been out since launch. It launched on T-Mobile

Look at it this way , now instead of MS launching on two networks with zero big phones at the time , they will be launching right behind a big phone on eac h of the networks (iphone on verizon , 3d phone on sprint)

Zero big phones? I'm guessing you mean zero "IPhone level" phones. They had plenty of desirable alternatives to any given WP7 device that may have been launched, though.

 

[bkilian]

I suppose bkillian will get the golden office chair he always wanted, like what the boys in the Windows division get to sit in!

Seriously though, everything looks on the up and up. When can we expect they might consider a price cut, also how steep a price cut could we expect if they do? I can't see them sitting on a wad of cash and let their competitors get ahead of them.

Edit: They only shipped 2.3M IIRC fewer 360's than Nintendo Wiis

I'm just hoping for _any_ office chair. We haven't been allowed into the building for the last week because they've been doing the corporate shuffle and moving all our offices around.
I have no knowledge of any pricing details, but in general, you lower prices to spur sales or get rid of inventory. Since our inventory is low, and our sales are not flagging, I don't see any current pressure to lower prices.

 

[Squilliam]

I'm just hoping for _any_ office chair. We haven't been allowed into the building for the last week because they've been doing the corporate shuffle and moving all our offices around.

That sounds like fun? or ?

I have no knowledge of any pricing details, but in general, you lower prices to spur sales or get rid of inventory. Since our inventory is low, and our sales are not flagging, I don't see any current pressure to lower prices.

Surely more is more in business? Theres always the desire to see bigger profits and larger market share than the year previous.

Anyway is there any chance you can comment on whether you guys work on gross margins or operational margins in the console business? I have always been interested in what costs are attributed to a console in terms of business related expenditure or whether the price of the console has more been determined by the gross margins or a cost + basis. I'd understand completely if you don't know or can't say however!

 

[bkilian]

That sounds like fun? or ?

It's kinda irritating, since they didn't give us the week off, so we were supposed to still get work done, which is quite hard when all your machines are turned off, and you're an audio person.

Surely more is more in business? Theres always the desire to see bigger profits and larger market share than the year previous.

Anyway is there any chance you can comment on whether you guys work on gross margins or operational margins in the console business? I have always been interested in what costs are attributed to a console in terms of business related expenditure or whether the price of the console has more been determined by the gross margins or a cost + basis. I'd understand completely if you don't know or can't say however!

More _profit_ is good. Lets say we lowered our price by 25%, which lowered our profit by 75%, we'd have to sell 4 times as many devices to make the same profit. A 25% price break would not normally result in a 400% sales increase. We certainly want to increase our marketshare, since more console owners translates to more money over the long term, but we may not be willing to cannibalise current profits for potential future profits, especially if we've got good growth anyway. Also, as you move down in the price points, the customers you get are lower "quality" in terms of profit generation too. These are people who did not think the console was worth it at 199, they're probably not going to buy games at $60 a pop. They'll buy the classics at $20 and second hand games. Neither of which generate a lot of profit.

I'm not sure how they set the price of consoles. From what I've seen, the BOM only tangentially affects the final price, in that you don't want to lose too much money at the start. Retailers make very little on console hardware (IIRC, the $299 xbox used to cost a retailer around $275, no idea what it is now). The retail price is set by expectations and sales predictions. For instance, the Wii was incorrectly priced at launch, resulting in too much demand and not enough supply. The Kinect looks just about right, we sold every one we could manufacture, but there wasn't too much of a wii-like shortage.

The idea is not to pass savings on to the customer for as long as possible, so as to maximise your profit potential. If you're still selling everything you make as fast as you can make it, you don't need to lower the price. If your sales are flagging and production exceeds demand significantly (and ideally, if there is room in the wholesale-BOM cost), you lower the price.

Edit: Oh, and as far as I can tell from how our VPs talk, we don't have past losses held against us. So our division is concerned more about the profit being made now and future profit potential (i.e. growth) than "making up" for the development costs of the system. Microsoft is practically debt free, and our culture applauds "big bets" that may take 5-10 years to bear fruit, but have the potential to be a huge business (which the shareholders _really_ hate, but is a good way to future proof a company). So at a guess, when they talk profits for the hardware, they're probably talking sales-cost of sales (BOM + manufacturing + distribution) and not development.

 

[NathansFortune]

I suppose bkillian will get the golden office chair he always wanted, like what the boys in the Windows division get to sit in!

Seriously though, everything looks on the up and up. When can we expect they might consider a price cut, also how steep a price cut could we expect if they do? I can't see them sitting on a wad of cash and let their competitors get ahead of them.

Edit: They only shipped 2.3M IIRC fewer 360's than Nintendo Wiis

What kind of crazy talk is this! Don't expect any price cuts, the 360 is currently in its record year, and even if they follow Sony's strategy of keeping firm on prices they should be flat over the next year and that will still be better than all other years.

360 is going great guns and it doesn't need a price cut to push it and I'm guessing corporate are probably quite happy that the 360 and Xbox is turning into a profit generation centre rather than a money drain! You can see Sony are on the same profitability over sales path as well and it seems to have worked out for them this year, profits up in SCE and sales up.

Nintendo are the company that will need to cut prices and push console to meet investor growth targets and because their whole business is dependent on a single income stream (gaming) unlike Sony and MS they will need the continued success of the Wii to drive their business if 3DS is met with a lukewarm reception.

 

[dobwal]

Its ms , they should have hired people just for the cdma verison. Here in the states there are more cdma customers than anything else. Both up till now have had lack luster high end phones.

Thats easy to say in hindsight, but what if WP7 was an utter complete flop selling in the area of 50k phones since release. A CDMA phone would of represented an additional waste of investment.

 

[bkilian]

Thats easy to say in hindsight, but what if WP7 was an utter complete flop selling in the area of 50k phones since release. A CDMA phone would of represented an additional waste of investment.

There are people working just on the CDMA version, but when resources are tight, and they're always tight in the Windows Phone group, you choose your battles carefully, and supporting a standard that allows you to launch worldwide is a much better bet than supporting a standard that is used by only the US and Japan.

If you want a verizon phone, my KIN is somewhere in my office... although I hear they're turning off the service today.

 

[Squilliam]

It's kinda irritating, since they didn't give us the week off, so we were supposed to still get work done, which is quite hard when all your machines are turned off, and you're an audio person.

I guess when you get a corporation that big you'd have to expect things like that to happen!

More _profit_ is good. Lets say we lowered our price by 25%, which lowered our profit by 75%, we'd have to sell 4 times as many devices to make the same profit. A 25% price break would not normally result in a 400% sales increase. We certainly want to increase our marketshare, since more console owners translates to more money over the long term, but we may not be willing to cannibalise current profits for potential future profits, especially if we've got good growth anyway. Also, as you move down in the price points, the customers you get are lower "quality" in terms of profit generation too. These are people who did not think the console was worth it at 199, they're probably not going to buy games at $60 a pop. They'll buy the classics at $20 and second hand games. Neither of which generate a lot of profit.

I had suspected that the lower price point customer would be a less valuable customer, however I thought that things like Xbox Live subscriptions which seem like a gift which keeps on giving for you guys in terms of revenue and Live content sales could balance that out. Still, I guess only when you have to is a better position than doing it to please numbers junkies! I had assumed a price cut this year 'just because', but maybe I'll have to rethink the idea of a $129 Xbox 360 Arcade!

Edit: Oh, and as far as I can tell from how our VPs talk, we don't have past losses held against us. So our division is concerned more about the profit being made now and future profit potential (i.e. growth) than "making up" for the development costs of the system. Microsoft is practically debt free, and our culture applauds "big bets" that may take 5-10 years to bear fruit, but have the potential to be a huge business (which the shareholders _really_ hate, but is a good way to future proof a company). So at a guess, when they talk profits for the hardware, they're probably talking sales-cost of sales (BOM + manufacturing + distribution) and not development.

I guess Kinect is an example of a 'big bet'? Also I guess Windows 8 Arm is another? I see what you mean now, actually thinking back there probably are a few failures I could name however as a company given the success of Kinect, Xbox and possibly even Windows Phone's revitalisation so if you take the good with the bad as part of the same strategy overall it does seem to have worked even if it's earnt a bit of stick for you guys in the past when it hasn't.

Overall do you know if theres any reason why say Kiosk distribution wouldn't work with the Xbox 360 hardware? I was thinking that given the fact that places like Brazil have extremely low incomes relatively and high piracy rates whilst you're unable to get content to them at a reasonable price relative to income, its a tangent from one of the other technical discussion threads but since the 360 does come with an external hard-drive it does seem supportable. It seems like one of the big bets you guys ought to be making since given the fast development rate and demographic bulge which points towards your key demographics they could become quite large markets, maybe comparable to countries like France in the near future.

 

[jiaolu]

i kind of worry for the microsoft too late for the tablet market.

 

[NathansFortune]

Not really. Look how much later Android entered the smartphone market compared to iOS or Symbian and we have just heard that Android is now the best selling smarphone platform in the world. As long as MS can come up with a decent platform for tablets and a compelling experience people will buy it just like they bought Android devices vs Apple.

 

[zed]

Not really. Look how much later Android entered the smartphone market compared to iOS or Symbian and we have just heard that Android is now the best selling smarphone platform in the world. As long as MS can come up with a decent platform for tablets and a compelling experience people will buy it just like they bought Android devices vs Apple.

Its not too late but unless they make there OS free + match the competitors OS specs they wont succeed.
Heres a radical idea
windows phone 7 has been a disaster (shipping less in 3 months than the number of andriod phones that get activated per week) theres rumours that nokia (who are still the largest phone maker worldwide) is also going for android, if it does then its gameover WP7.
MS should pay nokia $10 billion (perhaps $20billion whatever) to have windows phone 7 on all their phones for the next X years, OK this sounds backwards usually nokia should pay MS but with google not charging for android MS has to do something radical or else theyre stuffed

 

[Zeross]

windows phone 7 has been a disaster (shipping less in 3 months than the number of andriod phones that get activated per week)

The HTC Dream had been a disaster, probably shipping less in its whole life than the number of iPhones that Apple ships in a week, but in the end Android was successful nevertheless. You can't judge the success of a platform based on the success of the first devices that use it.