Microsoft earnings illustrate move to devices and services from software - Economic Times ~ Electronic Gadgets

SEATTLE: A picture of the new Microsoft, one transformed from a software factory into a maker of devices and online services, came into sharper focus Thursday.

The old Microsoft had an almost unmatched ability to chug out profits by selling software on discs to customers. The new Microsoft has an expanding portfolio of hardware products with decidedly lower margins.

That was clear Thursday, when the company reported a happy 14 per cent increase in revenue - in large part from brisk holiday sales of its new Xbox game console and Surface tablets - and a less happy 3 per cent rise in profit.

The changing image of Microsoft was greeted positively by investors, who sent the company's shares up more than 3 per cent in after-hours trading after the release of its financial results.

Microsoft management has been coaching Wall Street for some time to expect major changes in its business as it refashions itself to what it calls a devices and services company.

Apple, of course, is emblematic for that type of company. Apple's success in new product categories like tablets and mobile phones - and Microsoft's weakness in those areas - is a big reason Microsoft has taken the once unthinkable step of making its own computers and mobile phones, although both crimp profit margins.

The person driving that change at Microsoft has been Steven A. Ballmer, the chief executive. But if the vision is going to be seen through to the end, it will be by someone other than Ballmer, who is stepping down in the coming months. His successor was not named Thursday as the search for a new leader dragged on.

The holidays are an especially strong time for hardware sales, and they offered a good test of the company's evolving focus. The new Xbox One turned out to be one of the most highly sought gifts this year, and Microsoft's new versions of the Surface tablet received better reviews than its first tablet offerings.

Those sentiments translated into sales. Microsoft sold 7.4 million Xbox consoles, including the Xbox One and the older Xbox 360, up from 5.9 million a year ago. And revenue from the Surface tablet more than doubled to $893 million from the previous quarter. In the last quarter, which was Microsoft's second fiscal quarter and ended Dec. 31, revenue from devices and consumer hardware rose 68 per cent, to $4.73 billion, growing far faster than any other part of the company.

The company reported net income in the quarter of $6.56 billion, or 78 cents a share. That was up from $6.38 billion, or 76 cents a share, a year ago. Microsoft's revenue jumped 14 per cent, to $24.52 billion.

Analysts surveyed by Thomson Reuters on average had expected the company to report earnings of 68 cents a share and revenue of $23.68 billion.

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