Microsoft: downturn? what downturn?

Stan Beer
Thursday, 30 October 2008 16:04

IT Industry - Strategy

While the world battens down the hatches for what financial experts believe will be the mother of all recessions, Microsoft simply shrugs and posts solid results for the September quarter. Can the software behemoth continue to grow in the current climate? At least one analyst says yes.

Microsoft succeeded in growing its revenue by 9% compared to the same quarter in 2007 and its operating income by 2.5%. That may not be spectacular growth when compared to a company like Google but for a company playing in a mature market space with mammoth revenues like Microsoft that's not too bad when the global economy appears to be going to hell in a hand basket.

According to Dwight Davis, vice president at technology analyst firm Ovum, Microsoft believes it can outperform the overall IT market and continue to achieve healthy growth rates, even in the wake of a deep worldwide recession. What's more, Mr Davis tends to agree.

"We wouldn't bet against it," he says.

Much of the criticism that Microsoft has copped in recent years has revolved around the fact that it appears to be a three-trick pony that can't figure out how to make money from emerging markets. The Lion's share of revenue and income come from the mainstay desktop operating system and office productivity software, which includes Windows and Office, with strong support from the servers business.

Microsoft's attempts to assert its dominance in the Internet business, in particular the lucrative search advertising market, have so far proven to be futile.

However, according to Mr Davis, it is Microsoft's diversity that is serving it well during these hard times.

"The results are solid enough to suggest that the company's market position, value proposition and business diversification shield it from some aspects of the worsening macro-economic environment," says Mr Davis.

"If nothing else, Microsoft’s first-quarter results show that the company’s 20-year effort to expand beyond PC client software now allows it to balance weaknesses in some areas with strengths in others.

"In its first fiscal quarter, for example, Microsoft’s Windows Client business ($4.1 billion in revenues) was flat compared to the prior year’s first quarter, and actually saw operating income fall by $200 million to $3.1 billion. However, relatively strong results in several of Microsoft’s other critical business units more than made up for the flagship Client unit’s shortcomings."

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