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Microsoft Posts Record Earnings Even As XBox Revenues Drop

Image representing Xbox as depicted in CrunchBase

Image via CrunchBase

Microsoft seems to be immune to the woes of the rest of the economy. While many major brands are laying off employees and tightening expenses as consumers don’t spend at the same levels they used to, the technology giant is performing better than ever. Microsoft recently announced last quarter’s earnings, which saw it take in $17.41 billion. That’s a massive haul, but shockingly enough, profits are not following suit. Their profit margin dropped 2.4% from the first quarter of 2011, down to $5.11 billion.

Executives at Microsoft have noted a couple of culprits in their stalled profits. First, PC sales were generally tepid, due both to the continuing market shift from traditional computers to smartphones and tablets. At the same time, the company faced shortage of hard-discs from Asia, due to the extreme flooding on that continent. Finally, revenues from the Xbox, Microsoft’s gaming hardware, were significantly down.

As for the first issue, Microsoft will meet the changing desires of consumers with their own series of Windows-based tablet devices. They will come to market sometime in the fall, coinciding with the company’s release of its newest, tablet-friendly operating system, Windows 8. When it comes to the flooding, there isn’t terribly much to be done. Asia continues to be one of the largest providers of computer hardware, and moving their efforts due to an unavoidable ‘act of god’ is completely impractical.

But the Xbox situation may be the most concerning. The video game market is incredibly important to Microsoft, and the company hopes that the 16% drop in Xbox revenues this past quarter is simply due to a mild video game market in a post-holiday season slowdown. They have taken solace in the fact that Xbox, bolstered by the popularity and massive quantity of games available for the Xbox360, has led the market for more than a year now. Microsoft CFO Peter Klein spoke to the issue on their latest earnings call. He feels Xbox Live, the networked aspect of the Xbox360 is a “unique value proposition…[and] a persistent long-term revenue stream”.

Considering that revenues are at an all time high, he may be right to remain optimistic. After all, many of Microsoft’s offerings are performing very well. All of their business products, such as Sharepoint, Office 365 and Lync posted double-digit revenue growth. They’ve also been hard at work investing in cloud services, something that’s only going to gain strength in the coming years. They’ve even coined a term for their approach: hybrid IT. Microsoft’s goal is to simultaneously develop platform-based and cloud-based technology, so the company will continue to remain a solution for any business’ needs.

Microsoft is dedicated to also expanding departments that seem to be performing well. They have Windows-based smartphones that are very popular, and they continue to launch new phones such as the HTC Titan II and the Nokia Lumia 900 with much fanfare. They’re also vastly expanding their app offerings, actually doubling the apps they’ve made available in their Windows Phone Marketplace over the last quarter. All in all, it doesn’t seem that Microsoft execs are going to have to pay people’s salaries with gifts from their Chase freedom categories any time soon.