Microsoft: downturn? what downturn?

Stan Beer
Thursday, 30 October 2008 16:04

IT Industry - Strategy

Mr Davis pointed to the Business Division, including Microsoft Office, SharePoint, Dynamics and other properties, which saw revenues increase by 20% to $4.9 billion and operating income grow 20% to $3.26 billion. Also, the Server and Tools business unit’s revenues grew 17% to $3.4 billion, with operating income growing 23% to $1.08 billion.

Even the Online Services Business - Microsoft's Internet advertising arm - grew revenues by 16% to $770 million, despite still suffering heavy losses to the tune of $521 million.

Beyond product diversification, Microsoft has been able to persuade customers that it offers a compelling value proposition, even in an environment where it must compete against low-cost alternatives such as open source products and subscription-based online services, says Mr Davis.

According to Mr Davis, in hard times it's a case of the devil you know rather than price that counts and everybody knows Microsoft.

"Despite the fact that its initial prices are higher than some of these alternatives, Microsoft exploits its products’ familiarity and relative ease of use to deliver a total cost of ownership message that many companies facing tight IT budgets find convincing," he says.

"Familiarity and market presence benefit Microsoft in tough times."

The fact of the matter is, as Mr Davis points out, Microsoft has $25 billion in the bank and in hard times cash is king, especially when there are so many cheap acquisitions to be had. Microsoft may well now be breathing a sigh of relief that its take-over bid for Yahoo! failed earlier this year with so many cheap companies on the market which can be snapped up.

In today’s environment, when most economic reporting is heavy on doom and gloom, Microsoft’s guidance for the remainder of its fiscal year seems almost Cassandra-like, according to Ovum's Mr Davis.

"For its second fiscal quarter, ending 31 December 2008, Microsoft forecasts revenues to be in the range of $17.3–17.8 billion, and operating income to be in the range of $6.1–6.4 billion. For its full fiscal year, ending 30 June 2009, Microsoft expects revenues to be in the range of $64.9–66.4 billion, and operating income to be in the range of $24.4–25.5 billion. By comparison, Microsoft’s fiscal 2008 revenues were $60.4 billion and its operating income was $22.5 billion.

"Microsoft’s guidance suggests that—for the near term, at least—the company may be all but recession proof. Uncertainty surrounding the severity and duration of the economic slump make it impossible to assess the probability of Microsoft’s rosy scenario. But it is clear that the vendor’s many strengths give it a level of financial security that most companies can only envy."