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Microsoft Revenue Up 6%; WP7 Still Struggling

Fri, 04/20/2012 - 7:03am
Andrew Berg

Microsoft late Thursday reported fiscal third-quarter 2012 earnings that beat analyst expectations. The company reported revenue up 6 percent to $17.41 billion. Operating income came in at $6.37 billion, while net income of $5.11 billion, or 60 cents per share, represented a slight year-over-year drop from $5.23 billion and 61 cents per share.

Analysts had expected $17.18 billion revenue and 58 cents earnings per share for the quarter.

While Microsoft managed to get the desktop and tablet version of Windows 8 off the ground this quarter, the company is still struggling to bolster its Windows Phone operating system with developer support and distribution on more handsets.

Bill Koefoed, general manager of investor relations, said in an earnings call that the company's progress on mobile can be seen in the April launch of an LTE-capable Windows Phone through AT&T, as well as in the launch in China with multiple OEMs and the enabling of sub-$200 phones with more silicon support.

"With this work and with the building enthusiasm around Windows Phones, we have seen the number of apps published in the marketplace increase by 50 percent over the past three months," Koefoed said.

The ultimate goal is to get Windows 8 on phones, something that Microsoft developer evangelist Nuno Silva jumped the gun in an interview with the Portuguese website Zwame, where he said that all Windows Phones would receive an update to Windows 8 (Apollo). Silva quickly retracted those comments. 

"The point I was attempting to make was simply that existing Windows Phone applications will run on the next version of Windows Phone," Silva wrote in a blog post. "This is the same guidance that Microsoft shared late last year."

Silva said he mistakenly confused app compatibility with phone updateability. "I did not intend to give the impression I was offering new guidance on any products under development or their upgradeability," he wrote.

Industry analyst Roger Entner said lagging adoption of Windows Phone is due in large part to the company's refresh cycle and the fact that Microsoft has been rigid about allowing OEMs to stray too far from standardized specs.

Entner blames the fact that Nokia had to put its PureVue camera technology into the Symbian-based 808 on the fact that Microsoft has strict rules governing Windows Phone. "They have to innovate faster and loosen their reigns a little bit more," he said. "The reason why Android took off so much is because they didn't hobble their device manufacturers."

Of course, it's Android and Apple with which Microsoft is ultimately trying to keep pace. Apple currently releases two refreshes to its iOS software per year, each of which Enter argues prompts users to buy new phones. Microsoft, he says, will have to start moving at the pace of a mobile company, as opposed to one that releases a new desktop OS every two or three years.

"They're going to need to update their mobile operating system at least as often as they update their head of mobile software," Enter joked.

Entner's remarks are timely. Just yesterday, Gavin Kim, Microsoft's general manager of marketing for Windows Phone, left his post after just five months on the job.

Kim’s depature comes amidst a spate of rumors reported by various outlets this week of carriers in Europe slamming Nokia's latest Lumia devices, which are based on Windows Phone, as not good enough. Reuters reported one executive in charge of mobile devices for a European carrier as saying, "No one comes into the store and asks for a Windows Phone... If the Lumia with the same hardware came with Android in it and not Windows, it would be much easier to sell.

Shares of Microsoft were up just over 5 percent in early trading to $32.67.

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