Microsoft earnings report in: record sales but profits down, ‘Surface’ effect unknown

Microsoft released its fiscal second quarter results on Thursday for the period ending December 31, but there were almost more questions raised than answers given.

The company posted record revenue totaling $21.46 billion, while also reporting a net profit loss of 4 percent–or $6.38 billion, down from $6.62 billion.

We know that the Windows “restart” approach apparently helped, as sales within the company’s Windows division jumped 24 percent to $5.9 billion. This despite much talk and analysis about disappointing Surface sales.

PCWorld.com asks some interesting questions about the report:

How well is the Surface selling? The exact number of tablets shipped remains a mystery. During the company’s earnings conference call Thursday, Microsoft chief financial officer Peter Klein said the Windows Division saw a 40 percent increase in non-OEM revenue on sales of Windows 8 and Surface RT.

The Surface RT tablet, the company’s first piece of hardware, will see an expanded rollout this year as it hits additional retail outlets and rolls out to 14 additional countries. So far, the tablet has only been available at Microsoft’s own stores and in select locations.

“Demand exceeded the limited assortment of touch devices available,” Klein said.

The company is clearly committed to the idea that Surface offers the best use of Windows 8’s touch capabilities; in the third quarter, Microsoft will focus on increasing production and distribution, Klein said. The more powerful version of the tablet, the Surface Pro, also rolls out this quarter, with a February 9 launch date.

Is Windows Phone 8 changing the mobile landscape? Not yet, though Microsoft has high hopes for its new mobile OS, which also launched in the second quarter. Klein said sales of Windows phones were four times higher than they were in the same quarter last year. Again, though, Microsoft shied away from providing specific numbers.

Microsoft’s Entertainment and Devices Division, which includes the Xbox and Windows Phone 8, saw revenue slip by 11 percent to $3.8 billion. Adjusted for video game deferral revenue, or when players have rights to buy content in the future, that revenue drop was only 2 percent.

Is enterprise where it’s at? It certainly seems so. Microsoft reported a 9 percent revenue increase in the Server & Tools division, helped by the launch of SQL Server 2012 and Windows Server 2012. Klein said double-digit increases in multi-year software licensing agreements with businesses contributed to the record revenues last quarter.

But many of those businesses are upgrading from Windows XP to Windows 7, not to Windows 8. So the question remains: Are people buying Microsoft’s “reimagining” of the future, as Klein and company CEO Steve Ballmer have often called it?

Klein says that “Windows 8 is a big, bold, reimagining of Windows across the whole ecosystem. This [quarter] was the start of that process.”

Time will tell us just how valid that statement really is.

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