Microsoft News Tracker

Not all the promised features of the New Xbox Experience will arrive on November 19, but streaming of HD movies from Netflix will and and it’s a first for Microsoft:

It’s something you can’t get on the Roku. Nor on LG’s BD300. Nor on Samsung’s P2500 / P2550 Blu-ray players. Nor through Netflix’s own "Watch Instantly" portal. It’s high-def Netflix streaming, and it’s coming first to Microsoft’s Xbox 360. Yes friends, when the all new dashboard hits on November 19th, with it will come HD Netflix streaming for (US-based, presumably) Xbox Live Gold members.

There will only be 300 movies to start with and all the details haven’t been released yet, but it is on the way. For more on the interface changes coming in the New Xbox Experience, see Engadget’s exclusive first look.

It wasn’t the cloud operating system promised by Steve Ballmer, but Microsoft’s Azure Services Platform revealed yesterday by Ray Ozzie at the Microsoft Professional Developers Conference will surely get Microsoft a place at the table with the other big cloud platform players like Amazon and Google.

So what’s in the Azure Services Platform? A bit of old and and a bit of new:

Unlike many of today’s service-based solutions, the Azure Services Platform provides developers with the flexibility and ability to create applications while taking advantage of their existing skills, tools and technologies such as the Microsoft .NET Framework and Visual Studio. Developers also can choose from a broad range of commercial or open source development tools and technologies, and access the Azure Services Platform using a variety of common Internet standards including HTTP, representational state transfer (REST), WS-* and Atom Publishing Protocol (AtomPub).

Key components of the Azure Services Platform include the following:

• Windows Azure for service hosting and management, low-level scalable storage, computation and networking

• Microsoft SQL Services for a wide range of database services and reporting

• Microsoft .NET Services which are service-based implementations of familiar .NET Framework concepts such as workflow and access control

• Live Services for a consistent way for users to store, share and synchronize documents, photos, files and information across their PCs, phones, PC applications and Web sites

• Microsoft SharePoint Services and Microsoft Dynamics CRM Services for business content, collaboration and rapid solution development in the cloud

A limited community technology preview (CTP) of the Azure Services Platform was made available to PDC2008 attendees. There were no promises on commercial availability or pricing although according to Ray Ozzie (via Nicholas Carr):

During its preview stage, Windows Azure will be available for free to developers. Once the platform launches commercially - and, according to Ozzie, Microsoft will be "intentionally conservative" in rolling out the full platform - pricing will be based on a user’s actual consumption of CPU time (per hour), bandwidth (per gigabyte), storage (per gigabyte) and transactions. The actual fee structure has not been released, though Ozzie says it will be "competitive with the marketplace" and will vary based on different available service levels.

There are more technical details at http://www.azure.com.

Microsoft today lifted the veil on Windows 7:

Today at its Professional Developers Conference 2008 (PDC2008), Microsoft Corp. rallied software developers by sharing the first full public demo of Windows 7. Windows 7 extends developers’ investments in Windows Vista and encourages the creation of new applications and services for the Windows platform. The company also delivered a pre-beta build of Windows 7 to PDC attendees and announced plans to release a full Windows 7 beta early next year.
…
In addition to Windows 7, PDC attendees received a pre-beta developer release of Windows Server 2008 R2, which will deliver many enhancements to Windows Server 2008, including live migration of virtual machines, power saving capabilities, and developer features to build and host next-generation applications and services.

Developers should go to http://www.msdn.microsoft.com/windows to learn more about developing for Windows 7 and Windows Server 2008 R2.

If you would like to kick Windows 7’s tires vicariously, Peter Bright has an overview of the user interface changes.

Microsoft today announced "lightweight" Web versions of Microsoft Office stalwarts Word, Excel, PowerPoint and OneNote to be delivered with Office 14 at some unspecified date which is generally believed to be in the latter half of 2009. According to Microsoft, the Web versions will have functionality comparable to Google’s suite of online office applications.

The formal name of Microsoft’s Web office suite will be "Office Web applications"  and they will be delivered to consumers through the existing Office Live service or via subscription to business customers. No details on pricing were provided.

Last week, Microsoft reported strong, if not blemish-free, financial results for the 1st quarter of fiscal 2009 (ending Sept. 30, 2008) and as expected cut its outlook for the 2nd quarter. The good news was that the outlook was not as dark as Wall Street had expected:

Technology investors are so tired of the drumbeat of bad news that has continued to roil tech stocks that they grasped at the tiniest bit of optimism in Microsoft Corp.’s predictions for its second quarter.

Microsoft said in its fiscal first quarter earnings report that it expects to see second quarter revenues in the range of $17.3 billion to $17.8 billion, while analysts had previously been forecasting revenues of about $17.9 billion. But because its lowered forecast was not as bad as the worse case scenario feared on Wall Street, the stock ended up getting a small boost in after-hours trading.

As for 1Q09 itself, earnings per share were 49 cents beating the analyst consensus of 48 cents.  Still, there were some distinct oddities revealed in the segment results as discussed below with quotes from the 10-Q filing.

Client:

Since the estimated PC shipment growth rate was 10-12%, the big question is where did all the money go? Microsoft merely states:

Client revenue increased reflecting growth in licensing of Windows Vista. Revenue from commercial and retail licensing of Windows operating systems increased $125 million or 22%. OEM revenue decreased $46 million or 1% while OEM license units increased 8%. The decline in OEM revenue reflected the four percentage point decrease in the OEM premium mix to 71% as well as changes in the geographic and product mixes.

I’d conjecture that piracy, Apple, and netbooks (running Windows XP) all played a part, but the bottom line is that Windows revenue grew markedly less than the PC shipment rate which is not good news. Beyond that, income growth was negative due to increased expenses included a 20% increase in R&D expenses that was headcount-related. Not a disaster, but not a pretty picture either.

Business (mostly Office):

Old reliable Office brought home the bacon with the help of $214 million from currency exchange rates. Of note is that, "Consumer revenue increased $288 million or 36%, reflecting increased sales primarily due to promotional pricing programs for the 2007 Microsoft Office system." Expenses increased apparently mostly driven by the troubled acquisition of FAST.

Server and Tools:

Server and Tools continued its winning ways helped out by $119 million growth in revenue from the low margin consulting and Premier and Professional product support services.

Entertainment and Devices (mostly Xbox):

I have to quote extensively for this odd tale:

Xbox 360 platform and PC game revenue decreased $331 million or 22%, primarily as a result of the $330 million of incremental revenue from the launch of Halo 3 in the first quarter of fiscal year 2008 and decreased revenue per Xbox 360 console as a result of price reductions during the past 12 months. We shipped 2.2 million Xbox 360 consoles during the first quarter of fiscal year 2009, compared with 1.8 million Xbox 360 consoles during the first quarter of fiscal year 2008. Other EDD product revenue increased $216 million or 51%, led by increased sales of application software for Apple’s Macintosh computers, the Zune digital music and entertainment platform, and mobile and embedded device platforms.

That has to be Mac Office, which somehow found its way to shoring up the Entertainment and Devices bottom line.

For the remainder of fiscal year 2009, we expect revenue to be flat or to decrease relative to the prior fiscal year due to year-over-year variations in launches, volumes, mix, and prices across our portfolio of products and services. We expect sustained profitability for fiscal year 2009.

Undoubtedly marginal, low growth profitability even adding in Mac Office.

Online Services:

Online advertising revenue grew 15% ($72M) and aQuantive agency revenues nearly doubled to $98M, but cost of revenue increased by $251 million "primarily driven by increased data center and equipment costs and other expenses ate up that and more. The outlook was for more of the same.

Corporate Level Activity (overhead and legal):

No particular item of corporate overhead was called out for the whopping big increase.

Bottom Line: By and large it’s the usual Microsoft story except for the weakness in Client results. Entertainment and Devices continues to underperform Microsoft’s software businesses and the Online Services sinkhole can only be justified as "building for the future."