Friday, 28 January 2011 06:00

Microsoft's Kinnect Helped Power It To A Record Quarter, Indicating A New Era For Both MSFT & Personal Computing

Last month I said that "The (Very Near) Future of Microsoft Windows Is Here, Now!", lamenting on how impressive Microsoft's new computing and gaming interface was. For those of you who are not familiar with the Kinnect technology, I strongly suggest you review the contents behind the link.  It is truly amazing, particularly considering it has already been hacked onto Windows 7 and individual computer applications for the "Minority Report" effect.

Well, it appears as if I was correct, for Microsoft has surprised the investment community once again by posting not on a 5% rise in revenues but a 55% rise in the revenues of its entertainment divisions - a division that has been widely known to be a money loser. The Xbox franchise is arguably the most valuable gaming franchise in the world, and the Kinnect has lit it on fire. The possibilities for this stuff is quite significant as it matures and gets refined. Imagine controlling all of your devices with gestures and voice commands!

Of particular note is the fact that Microsoft's consumer businesses are nearly on par with that of their enterprise divisions, approximately 7% in difference (after reversing deferred revenue recognition). This marks a significant change in Microsoft's revenue mix, and it is not going unnoticed. There is no wonder why Microsoft is moving Windows to ARM architecture, to better compete with those guys from Apple and Google.

From Endgadget:

Looks like the rumors were true: Microsoft has just confirmed that the next major revision of Windows, what we'll call Windows 8 for now, will include ARM support. The company also is throwing a little love to all the system on a chip (SoC) makers out there, indicating they'll be getting support out of the box as well. This is the sort of thing we've come to expect from Windows Embedded, but it's something new for the company's flagship product, and is something of a continued sign that the concept of a "personal computer" is only going to keep changing. Full details are in the release after the break, but be warned those details don't include anything even resembling a date. There are, however, about a zillion quotes from companies like ARM, which says:

Windows combined with the scalability of the low-power ARM architecture, the market expertise of ARM silicon partners and the extensive SoC talent within the broad ARM ecosystem will enable innovative platforms to realize the future of computing, ultimately creating new market opportunities and delivering compelling products to consumers.

This more than mere marketing and PR fluff. See my thoughts, in detail: The Future of the Mobile Computing Wars: Contiguous Rich Client Computing! While it is perfectly understandable to want to prevent Apple from gaining too strong a foothold in the tablet market, I think many vendors are incapable of seeing the forest due to excess tree bark in their eyes. Consumers and business users are expected to purchase a smartphone, desktop, notebook, media player and now a tablet? Realistically, many of use have replaced the desktop with a notebook, and the media player with a smartphone (and the trend indicates that will continue), but the question still stands if there is practical room for a notebook, smartphone and tablet. The only device that is a definite at this point is the phone, and the notebook and tablet will probably converge. Suppose some company beats the others to the punch on that convergence? The secret lies in the cell phone and that is where the next set of BoomBustBlog forensic analysis will focus.

[youtube reZyBuawR4k]

This should be interesting, for to have a full blown Windows computer running on a phone or tablet, with no compromises in terms of actual productivity (read as being able to use the full Microsoft Office suite) considerably changes the game in mobile computing. Don't say I didn't tell you so, reference and After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play.

What is even more exciting is the fact that this will cause Apple and Google to REALLY kick it into overdrive, for as cool as their products are, they don't touch the depth, functionality and usability of the suite of core Windows applications. The mere threat of Microsoft being able to move that functionality to a true mobile platform is an incentive for them to truly innovate.. In addition, look for the power of a chip to truly adhere to Moore's law again, if not better it, for Intel must be feeling the pressure by now and they have yet to move their low power contender (the Atom chip) onto the newer technology fabrication processes. Since it is clear the company is not daft, this probably means they have something strategic up their sleeves to combat the loss of near exclusivity of the Wintel deal (with Microsoft courting ARM architecture), probably the most powerful, profitable partnership in the history of computing. One would assume that Intel will move into low power consumption chips in a big way, for although the margins are much lower than server chips, et. al., they cannot afford for the Nvidias of the world to gain a foothold in what was the desktop domain.

From the Microsoft Press Release:

Redmond, Wash. – Jan. 27, 2011 – Microsoft Corp. today announced record second-quarter revenue of $19.95 billion for the quarter ended Dec. 31, 2010. Operating income, net income and diluted earnings per share for the quarter were $8.17 billion, $6.63 billion and $0.77 per share, respectively.

Prior year results reflect the recognition of $1.71 billion of deferred revenue relating to the Windows 7 Upgrade Option program and sales of Windows 7 before general availability in October 2009. Second-quarter growth rates for revenue and earnings per share were 5% and 4% respectively. Without the deferred recognition in the prior year, second-quarter growth rates for revenue and earnings per share were 15% and 28%, respectively.

(In millions, except per share amounts) Three months ended December 31,

2010 As Reported (GAAP) 2009 As Reported (GAAP) Deferred Revenue Recognition 2009 As Adjusted
Change (GAAP)
Change (Non-GAAP)
Revenue $19,953 $19,022 $1,711 $17,311 5% 15%
Operating Income $8,165 $8,513 $1,711 $6,802 -4% 20%
Diluted Earnings Per Share $ 0.77 $ 0.74 $0.14 $ 0.60 4% 28%

“We are enthusiastic about the consumer response to our holiday lineup of products, including the launch of Kinect. The 8 million units of Kinect sensors sold in just 60 days far exceeded our expectations,” said Peter Klein, chief financial officer at Microsoft. “The pace of business spending, combined with strong consumer demand, led to another quarter of operating margin expansion and solid earnings per share growth.”
Among the factors driving Microsoft’s record revenues and earnings per share was the 55% growth in revenue for the Entertainment & Devices Division, as the success of the Kinect sensor boosted sales of Xbox 360 consoles, Xbox Live subscriptions and Xbox games.
Microsoft Business Division revenue grew 24% year-over-year. Office 2010 is the fastest-selling consumer version of Office in history, with license sales over 50% ahead of Office 2007 over an equivalent period following launch.

Last modified on Friday, 28 January 2011 06:40


  • Comment Link Andrew Macpherson Monday, 31 January 2011 01:02 posted by Andrew Macpherson

    I got to play with the Kinect this weekend, and now I'm a believer, it is simply fantastic, I want one!

  • Comment Link Reggie Middleton Saturday, 29 January 2011 10:50 posted by Reggie Middleton

    Intel will most definitely unveil a low power strategy of their own. We still have to see the capabilities of the Oak Trail tech, but I believe they have something lined up after that as well.

  • Comment Link Enyibinakata Saturday, 29 January 2011 07:44 posted by Enyibinakata

    What will Intel do now ? Will the Nokia / Intel Meego project provice enough counter attack ? Intel is now in competition with Microsoft on the OS front Interestin years ahead. Reggie, your thoughts please ?

  • Comment Link Reggie Middleton Friday, 28 January 2011 14:23 posted by Reggie Middleton

    One would think that the potential of a truly interactive interface would be obvious, but it appears as if many are discounting it because of MSFTs many missteps.

    I owe you an email, and it is on its way. I've been backed up.

  • Comment Link Indy Friday, 28 January 2011 14:10 posted by Indy

    The hacks to get Kinect on desktop OSs are plentiful, and now the sub-contractor who build Kinect for MS is bringing out a newer version specifically with drivers for desktop OSs and other devices. The sensor (and drivers) are at the hard of the innovation - watch them closely.

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