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Strong Start

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SummaryMicrosoft’s Q2 results show Windows 8 is doing well. A new version of Office is also on the way.

Following Apple’s poor showing and Google’s seemingly stellar results, all eyes were on Microsoft—and it met expectations, though it didn’t particularly excite investors much either. The largest tech company saw its Q2FY13 revenue rise 3% to $21.46 billion and its profits fall to $6.4 billion from $6.6 billion year on year. While this may not look too good on the face of it, a deeper look at the numbers suggest that Microsoft is indeed on a good wicket. First, this was the first quarter that took into account Microsoft’s Windows 8 pre-orders. The company announced it sold 60 million Windows 8 licences since its October 26 launch—numbers that were broadly at par with its highly successful Windows 7 operating system three years earlier—earning the company $783 million. Except for the most euphoric Microsoft fans, most analysts say these sales figures for Windows 8 were better than expected—there was always going to be inertia against a shift to such a radically different OS, and at no point was the mobile version of Windows 8 expected to totally oust the incumbents, Android and iOS. Windows 8 has had a strong start and, as people get familiar with it and Microsoft’s Surface tablets start selling well, the new OS will find itself in a much better position.

A major factor that dragged down Microsoft’s revenue and profits was its decreased sales of Microsoft Office. This, too, was expected. The company is gearing up to launch a new version of Office, and this always dampens sales of older versions, with buyers waiting for the new product. And the investment the company has been making in the development of the new Office further hit profits. But, given that Office constitutes a large portion of Microsoft’s revenue—the Business Division, which handles Office, contributes around 30-40% of total revenue—this investment is well worth it.

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