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Microsoft today unveiled Windows Phone 7 (formerly Windows Mobile 7) and while it is chockfull of new goodies to keep them in the race with Apple’s iPhone and Google Android, do not expect to see any phones using Windows Phone 7 until the holiday shopping season:
Today at Mobile World Congress 2010, Microsoft Corp. CEO Steve Ballmer unveiled the next generation of Windows Phones, Windows Phone 7 Series. With this new platform, Microsoft offers a fresh approach to phone software, distinguished by smart design and truly integrated experiences that bring to the surface the content people care about from the Web and applications. For the first time ever, Microsoft will bring together Xbox LIVE games and the Zune music and video experience on a mobile phone, exclusively on Windows Phone 7 Series. Partners have already started building phones; customers will be able to purchase the first phones in stores by holiday 2010.
Some of the new features:
Windows Phone 7 Series includes six hubs built on specific themes reflecting activities that matter most to people:
People. This hub delivers an engaging social experience by bringing together relevant content based on the person, including his or her live feeds from social networks and photos. It also provides a central place from which to post updates to Facebook and Windows Live in one step.
Pictures. This hub makes it easy to share pictures and video to a social network in one step. Windows Phone 7 Series also brings together a user’s photos by integrating with the Web and PC, making the phone the ideal place to view a person’s entire picture and video collection.
Games. This hub delivers the first and only official Xbox LIVE experience on a phone, including Xbox LIVE games, Spotlight feed and the ability to see a gamer’s avatar, Achievements and gamer profile. With more than 23 million active members around the world, Xbox LIVE unlocks a world of friends, games and entertainment on Xbox 360, and now also on Windows Phone 7 Series.
Music + Video. This hub creates an incredible media experience that brings the best of Zune, including content from a user’s PC, online music services and even a built-in FM radio into one simple place that is all about music and video. Users can turn their media experience into a social one with Zune Social on a PC and share their media recommendations with like-minded music lovers. The playback experience is rich and easy to navigate, and immerses the listener in the content.
Marketplace. This hub allows the user to easily discover and load the phone with certified applications and games.
Office. This hub brings the familiar experience of the world’s leading productivity software to the Windows Phone. With access to Office, OneNote and SharePoint Workspace all in one place, users can easily read, edit and share documents. With the additional power of Outlook Mobile, users stay productive and up to date while on the go.
And the vendors on board:
Partners from around the world have committed to include Windows Phone 7 Series in their portfolio plans. They include mobile operators AT&T, Deutsche Telekom AG, Orange, SFR, Sprint, Telecom Italia, Telefónica, Telstra, T-Mobile USA, Verizon Wireless and Vodafone, and manufacturers Dell, Garmin-Asus, HTC Corp., HP, LG, Samsung, Sony Ericsson, Toshiba and Qualcomm Inc. The first phones will be available by holiday 2010. Customers who would like to receive additional information about Windows Phone 7 Series and be notified when it is available can register at http://www.windowsphone7series.com.
So will it be enough to get Microsoft back in the smartphone game? That’s the rub and it is a bit hard to say since the only available demo devices are pre-production, development-only handsets. One key point is that "manufacturers will not be able to make massive modifications to Windows Phone" or to the fairly rigorous hardware specifications which sounds more than a bit like Windows with all its good and bad aspects for the end-user and the OEMs. At this point all I can say is that Windows Phone 7 seems quite ambitious, but it is certainly late.
Microsoft yesterday reported 2nd quarter financial results for FY 2010 (ending Dec. 31, 2009) and sales of Windows 7 have jump started the old Microsoft money machine that had been stalled last quarter.
Microsoft Corp. today announced record revenue of $19.02 billion for the second quarter ended Dec. 31, 2009, a 14% increase from the same period of the prior year. Operating income, net income and diluted earnings per share for the quarter were $8.51 billion, $6.66 billion and $0.74 per share, which represented increases of 43%, 60% and 57%, respectively, when compared with the prior year period.
These financial results include the recognition of $1.71 billion of deferred revenue, an impact of $0.14 of diluted earnings per share, relating to the Windows 7 Upgrade Option Program and pre-sales of Windows 7 to OEMs and retailers before general availability. Adjusting for the deferred revenue recognition, second-quarter revenue totaled $17.31 billion, and diluted earnings per share totaled $0.60 per share.
“Exceptional demand for Windows 7 led to the positive top-line growth for the company,” said Peter Klein, chief financial officer at Microsoft. “Our continuing commitment to managing costs allowed us to drive earnings performance ahead of the revenue growth.”
Windows 7 and Windows Server 2008 R2 launched globally on October 22 as anticipated. Through the second quarter, Microsoft has sold over 60 million Windows 7 licenses making it the fastest selling operating system in history.
“This is a record quarter for Windows units,” said Kevin Turner, chief operating officer at Microsoft. “We are thrilled by the consumer reception to Windows 7 and by business enthusiasm to adopt Windows 7.”
Taking a look at the quarterly results of each of the business units from the 10-Q filing:
Windows & Windows Live
Windows Division revenue increased due to strong sales of Windows 7 and PC market improvement. We estimate total worldwide PC shipments from all sources grew approximately 15% to 17%. OEM revenue increased $2.3 billion or 72%. Excluding $1.7 billion of revenue recognized related to the Windows 7 Deferral, OEM revenue increased $664 million or 21%, while OEM license units increased 22%. The OEM revenue increase was primarily driven by PC market growth, higher Windows attach rates across all regions, channels, and types of PCs and the restoration of normal OEM inventory levels, offset in part by PC market changes, including stronger growth of consumer PCs versus business PCs and of emerging markets versus developed markets. Other revenue increased $511 million or 60% driven primarily by strong Windows 7 retail sales.
Costs were up for Windows 7 marketing and yes, business is lagging consumers in both PC purchases and Windows 7 adoption rates, but it is a solid story albeit one that Microsoft wished they could have told when Vista shipped. Windows Live is apparently a fly speck.
Server & Tools
Server and Tools revenue increased reflecting growth in product revenue, offset in part by a decline in services revenue. Product revenue increased $103 million or 3%, primarily driven by growth in Windows Server, Enterprise CAL Suites and System Center revenue. The growth in product revenue reflects continued adoption of Windows platform applications. Services revenue declined $14 million or 2%, primarily due to decreased revenue from consulting services.
Server and Tools operating income increased primarily due to product revenue growth and a decrease in research and development expenses. Research and development expenses decreased $41 million or 7%, primarily driven by decreased headcount-related expenses and third-party development and programming costs.
Server and Tools is still in the doldrums and likely will remain there until there is a turnaround in the general economy. Meanwhile they are cutting costs.
Microsoft Business Division (mostly Office)
MBD revenue decreased reflecting decreased business revenue partially offset by increased consumer revenue. Business revenue decreased $231 million or 6%, primarily reflecting a decline in licensing the 2007 Microsoft Office system to transactional business customers, offset in part by a 1% increase in Microsoft Dynamics revenue. Consumer revenue increased $95 million or 12%, primarily as a result of growth in the PC market.
MBD operating income was flat reflecting decreased revenue, offset by decreased sales and marketing and research and development expenses. Sales and marketing expenses decreased $81 million or 7%, primarily driven by a decrease in corporate marketing activities and headcount-related costs associated with our corporate sales force. Research and development expenses decreased $64 million or 15%, primarily as a result of capitalization of certain Microsoft Office system software development costs.
Another division awaiting a general economic rebound. I don’t think Office 2010’s expected arrival in June will change the story in the same way that Windows 7 did.
Online Services Division
OSD revenue decreased as a result of lower Access and online advertising revenue. Access revenue decreased $14 million or 29%, reflecting continued migration of subscribers to broadband or other competitively-priced service providers. Online advertising revenue decreased $11 million or 2%, to $516 million, reflecting a decrease in display advertising and advertiser and publisher tools revenue, offset in part by an increase in search revenue. Foreign currency exchange rates accounted for a $13 million or two percentage point increase in revenue.
OSD operating loss increased mainly due to increased cost of revenue and decreased revenue, offset in part by decreased research and development expenses. Cost of revenue increased $171 million or 50%, primarily driven by higher online traffic acquisition costs. Research and development expenses decreased $49 million or 17%, primarily due to decreased third-party development and programming costs and headcount-related expenses.
OSD is in the red yet again and the fact that the decline in Microsoft’s old dial-up ISP business (Access) is material to the bottom line shows that it is still struggling. The only good news was that search revenue was up, but not enough to counteract the slump in display ads on Microsoft Web properties.
Entertainment & Devices Division
EDD revenue decreased reflecting a $295 million or 12% decline in Xbox 360 platform and PC game revenue. This decrease was due mainly to decreased revenue from Xbox 360 video games, decreased Xbox 360 consoles sold, and decreased revenue per console, offset in part by increased Xbox LIVE revenue. The decreased revenue from Xbox 360 video games was due primarily to the release of two significant games in the second quarter of the prior year. We shipped 5.2 million Xbox 360 consoles during the second quarter of fiscal year 2010, compared with 6.0 million Xbox 360 consoles during the second quarter of fiscal year 2009. The decreased revenue per console resulted from price reductions during the past 12 months. Non-gaming revenue decreased $59 million or 8%, primarily reflecting decreased sales of Zune digital music and entertainment devices and Windows Mobile device platforms. Foreign currency exchange rates accounted for a $49 million or two percentage point increase in revenue.
EDD operating income increased due to reduced operating expenses. Cost of revenue decreased $478 million or 23%, primarily due to lower Xbox 360 console costs, offset in part by increased royalties to partners related to increased Xbox LIVE transactions. Sales and marketing expenses decreased $75 million or 15%, primarily due to decreased marketing for the Xbox 360 platform. Research and development expenses decreased $50 million or 10%, primarily reflecting decreased headcount-related expenses and third-party development and programming costs.
EDD nearly tripled their profit compared to the year ago quarter despite reduced revenue. This was due to Xbox 360 cost reductions which is perhaps all that can be expected until the economic outlook improves. Sales of the Zune and more shockingly, Windows Mobile, didn’t help any.
Bottom line:
All in all, it was a solid performance by Microsoft given the economic conditions and the overall result beat Wall Street estimates with a mild boost to the stock price in after hours trading. Windows 7 could not have come along at a better time for Microsoft.
Microsoft’s Steve Ballmer and Robbie Bach delivered the keynote last night at the 2010 Consumer Electronic Show in Las Vegas and it was the usual mixture of self-congratulatory boosterism and product and technology demos. Here is my list of highlights:
Windows 7
After a report on how well Windows 7 is selling, there were the PC demos including a prototype Hewlett-Packard slate PC that the technical press was pining for.
It looks like a touch enabled netbook to me and while it may have a niche, I suspect I would be screaming for a keyboard (or at least a stylus) in under a minute of usage. Perhaps more interesting were the ultrathin Lenovo A300 laptop with a 21.5" screen and the Sony VAIO home entertainment notebook with a 24" screen. How big does a laptop have to get before it becomes a single element desktop?
Bing
HP is making Bing the default Web search engine and MSN the default home page on all their PCs in 42 countries.
Xbox
Ballmer put the usual lipstick on this pig and Robbie Bach appeared later to flog upcoming games (including another lucrative Halo version) and tout Project Natal, the motion sensing technology that will appear later this year to replace the standard controllers for some games.
Windows Mobile
Zzzzzz.
Mediaroom 2.0
Bach also announced Mediaroom 2.0, the latest version of Microsoft’s IPTV offering for service providers which now supports PCs and smartphoes as well as set top boxes and Xbox consoles for TV viewing.
Summary
Microsoft really did not have much of its own to show again this year. I am almost beginning to miss the goofy Bill Gates future technology skits.
It was revealed yesterday that MSNBC.com (or as they like to call it these days - the msnbc Digital Network) purchased the breakingnews.com URL in December for an undisclosed price:
The msnbc Digital Network today announced its acquisition of the URL www.breakingnews.com. Breakingnews.com aims to be the fastest, most accurate site for live breaking news from around the globe. The site currently features up-to-the-second headlines from multiple news sources and will continually advance to meet hard news consumers’ expectations.
Actually, it currently seems to merely reproduce the @breakingnews Twitter feed, but that is apparently the point since MSNBC.com took over management of @breakingnews in November. So what’s the rationale for all this?
The latest addition to the msnbc Digital Network will focus on up-to-the-second news coverage from multiple sources, executives of the company said. (Msnbc.com is a Microsoft - NBC Universal joint venture.)
"It’s a different experience for news users, rather than any kind of diminishment for msnbc.com," Charles Tillinghast, president of the msnbc Digital Network, said in an interview. The move is "consistent with our strategy of creating different news experiences for different user interests," he said.
"Not everyone wants news surrounded by commentary or features," he explained in a statement. "Our goal as a news organization is to provide the most relevant experiences to satisfy distinct needs. Hard and fast breaking news is currently an underserved market. With www.breakingnews.com we can now provide the optimal solution."
Well, presuming someone looks at it instead of the Twitter feed, you can put ads on a Web page
