Microsoft Earnings: 6 Questions - InformationWeek

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09:06 AM
Michael Endler
Michael Endler
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Microsoft Earnings: 6 Questions

Microsoft has been on fire lately, but new CEO Satya Nadella will face questions during Thursday's earnings announcement about Windows XP, Nokia, Surface, and other trouble spots.

Microsoft announced this month that many Windows licenses are now free. The company is allegedly preparing a free, cloud-based version of Windows as well.

As InformationWeek's Charles Babcock presciently argued back in 2009, these changes were largely inevitable. The nexus of computing has moved from PCs to mobile devices and the cloud. Because Microsoft was slow to capitalize on the trend, OEMs dedicated more resources to Chromebooks and Google devices, and young developers dismissed Windows as a relic. Microsoft has since been forced into corrective measures, including free licenses for phones and tablets, new developer tools, and a cross-platform, cloud-centric attitude.

With over a billion users, Windows is still an ultra-valuable asset, but it's no longer a license to print money. As Windows licensing revenue falls, Microsoft will need its cloud services and enterprise products to pick up the slack.

2. Is the Surface brand still losing money?
Surface grew over the holidays, thanks to new models and price cuts to first-generation devices, but as of Dec. 31, Microsoft's tablet line was still losing money. Company execs say the company aspires to create the market's most productive tablets -- and in a narrow way maybe it succeeded. But whatever their merits, Surface tablets have appealed so far only to a niche. Successful product lines aren't always built overnight, but with almost a year and a half under its belt, the Surface line will become increasingly difficult to justify if it's not making any money.

If Surface sales growth is negative or modest, Microsoft might still save face with revenue from new related accessories such as the Surface Pro docking station. But if the numbers are ugly, investors will expect a clearer strategy. Can Microsoft boost Surface margins by using manufacturing economies of scale from the Nokia acquisition? Can the Surface line serve as a loss leader that fuels growth elsewhere? Does Microsoft have additional devices planned, perhaps something less beholden to PC-era productivity values?

3. What will Microsoft say about Windows XP?
Windows XP's termination deadline has come and gone, and based on comments from InformationWeek readers, Microsoft customers are upset. Will these disgruntled customers affect Microsoft's bottom line? Recent reports state Microsoft dramatically reduced the cost of extended XP service for many large enterprises, in some cases by millions of dollars. Such a move could indicate Microsoft doesn't have the stature it once did among core customers. It might also deny the company revenue it had anticipated. Moreover, rather than buying new Windows 8.1 PCs, some XP users will surely turn to Chromebooks, Macs, Android devices, and iPads instead -- but how many?

4. Does Microsoft have a plan for Nokia?
Microsoft's purchase of Nokia's device business is expected to close Friday, the day after Microsoft announces earnings. In the months since the deal was announced, Nokia touted an agenda built around emerging markets, including not only low-cost Windows Phone devices, but also, and more provocatively, budget phones based on Android. It also introduced its Lumia 2520 tablet, a device that overlaps with Microsoft's Surface 2.

Will Nokia's Android-based Nokia X platform survive after Microsoft takes over?
Will Nokia's Android-based Nokia X platform survive after Microsoft takes over?

Commentators have debated whether these strategies will stick once Nokia is assimilated and have even asked whether the Nokia purchase was necessary, given that Microsoft has since galvanized OEM support for

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Michael Endler joined InformationWeek as an associate editor in 2012. He previously worked in talent representation in the entertainment industry, as a freelance copywriter and photojournalist, and as a teacher. Michael earned a BA in English from Stanford University in 2005 ... View Full Bio

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Joe Stanganelli
Joe Stanganelli,
User Rank: Author
4/25/2014 | 10:55:07 AM
New megatech CEOs always make Wall Street excited -- especially when the tech sector begins to find the old CEO tiresome.

Speaking of Nadella, can we have an InformationWeek caption contest on that picture of him?  It's just so fantastic and hilarious.
User Rank: Ninja
4/24/2014 | 7:42:11 PM
Dual Complication
On the one hand, Microsoft has entered to many areas to compete, software was always there but then came video games, consumer markets and the Cloud, etc, everything except for maybe social media but then again Microsoft did buy some of Facebook's shares, so that even can't be said, confidently. This makes specialization difficult and competing with companies that specialize in a single area hard, I guess it has an effect on innovation as well.

On the other hand, it is good financial advice to have a diversified portfolio and at the end of the day if Microsoft makes a profit then everyone will be happy. But if Microsoft does not make a healthy profit then where is the innovation going to come from? 
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