Microsoft's quarterly earnings show its worldwide dominance is waning

By Preston Gralla

Microsoft posted solid quarterly earnings today, with $5.23 billion in net income, but the results show that the company's worldwide dominance is clearly waning. There's no doubt that Microsoft will remain immensely profitable well into the future, but today's results show that it no longer sets the tech agenda.

According to the company, it had third-quarter revenue of $16.43 billion, an increase of 13% increase over the same period last year. Its net income of $5.23 billion was an increase of 31% compared the the same quarter a year ago.

Those numbers are enviable, and shows that Microsoft is still a money-making machine. They were driven by several factors. One is sales of Microsoft Office --- the Business Division, which sells Office, saw its revenue grow 21% in the last year. Servers & Tools grew 11% compared to a year ago. And the Entertainment & Devices Division, which makes Xbox 360 and Kinect, had a blowout quarter, with 60% growth compared to a year ago.

So what's the problem? Here's a big one: The division that sells Windows saw revenue fall 4% compared to a year ago. And here's another big one: its online division continues to rack up big losses --- $726,000,000 for the quarter, compared to $709,000,000 a year ago.

Why the drop in Windows sales? You can point to a lot of places, but tablets are likely eating into the demand for notebooks. As the New York Times notes:

Japan's earthquake and consumer appetite for tablets caused computer shipments during the first three months of the year to decline 3.2 percent, according to IDC.

The iPad dominates tablet sales, and eventually Android tablets will become popular as well. Windows tablets, meanwhile, are few and far between. Windows 7 hasn't been designed for tablets, and Windows 8 is still a long time away.

When it comes to smartphones, the news has been bad for Microsoft as well, with recent surveys showing waning interest in Windows Phone 7 from both consumers and developers.

Tablets, phones, and online are the future --- and Microsoft is lost in all three areas. In a clear sign that Microsoft no longer dominates the tech world, Apple reported higher net revenue than Microsoft for the quarter --- $5.99 billion. As GeekWire notes:

That's a first, and a sign of Apple's ongoing rise on the wings of the iPad and iPhone.

Will Microsoft remain a powerful, influential, immensely profitable company? Absolutely. But the latest quarterly earnings show that its influence may be headed into a slow, steady decline.

Copyright © 2011 IDG Communications, Inc.

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