Cast your mind back three years. At that time, or so it appeared, Microsoft was far too big for its own good, and it dwarfed the likes of Apple, Google, and Yahoo to such an extent that it was barely worth mentioning the software giant and the three smaller rivals in the same breath. In fact, in the first quarter of that year, Microsoft enjoyed profits of $2.61 billion, whereas the aforementioned trio could only manage $228 million between them.
Forward wind the clock to today, and analysts are celebrating the return to form of Microsoft.
The company has just unveiled record quarterly profits of $4.93 billion, up from $2.98 billion a year ago. Now these figures were flattered slightly by money that had been deferred from previous quarters relating to promotional programs for Vista and Office – in all accounting for around a quarter of the profits. Even so, it’s heady growth, especially for such an old timer, which is now reaching the ripe old age of 32.
But contrast these results with those comparative minnows of three years ago. In the quarter just gone, Apple brought in $770 million, Google $1billion, and Yahoo $142 million in profits. That totals $1.912. Okay, that’s still less than half the level seen at Microsoft, but then, three years ago, the ratio was nearer ten to one. But, if Yahoo had been able to match Google’s growth, or even if it had been able to stay at level footing with Google – after all its profits were almost double the size of Google’s three years ago – then after deducting the amount Microsoft earned from deferrals, the trios’ earnings would actually have been within a few hundred million. There would have been just a fist full of dollars separating the old giant from the three pretenders.
It’s not difficult to see why Microsoft is doing so well compared to last year. It’s down to Vista. It was a long time in the making, but it’s here now and doing very nicely, thank you. Chief financial officer Chris Liddell told Reuters that consumer sales of Vista surpassed the company’s own expectations by $300 million. In fact, the company’s client division, which includes Vista, enjoyed sales of £5.27 billion, compared with $3.125 billion a year ago.
But the good news was not restricted to Vista. The company said it sold 500,000 units of the Xbox 360 in the quarter – and its online division saw revenues grow by eleven per cent, with advertising revenue up by 23 per cent.
You can see how the Xbox provides scope for growth in the years ahead. The company has not yet produced a portable version of the product. Furthermore, the Xbox does provide the company with its own halo effect, with many users being ardent fans.
But here’s the rub. The company has no answer to Google; it doesn’t even have an answer to Yahoo, and still lags in a sorry third place in the search engine market.
That’s why some are speculating that the smart move would be for the company to buy Yahoo.
Imagine the complaints if that idea had been mooted three years ago. “The company is far too powerful as it is,” they would have said. But today, the big fears seem to relate the size of Google.
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