Analysis

This week we’ve seen the recent set of financial results from both Microsoft, and it’s soon-to-be-acquired mobile phone business from Nokia.

It’s pretty easy to paint a pretty picture for Microsoft. They beat the Street’s expectations on revenue and earnings, and things are going well in terms of enterprise sales. On the consumer front, you could focus on the doubling of Surface sales and decent showing in Xbox sales.

But I’d like to open up the discussion a bit more. Let’s talk about the long term potential for Microsoft’s business. To pre-frame the discussion, consider that when I say “long term” I really mean it. I’m talking about the next decade or more.

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This morning Nokia reported its financial results for the June quarter.  Overall, Nokia is hanging in there.  The company is seeing much stronger results from its ownership in Nokia Siemens Networks, while the business of making phones has not yet returned to profitability.

As far as Lumia goes, Nokia managed to sell 7.4 million of these Windows-based smartphones compared to 5.6 million last quarter.  Naturally, with BlackBerry having shipped only 6.8 million phones last quarter (a number that has been in decline), the media jumped all over this to declare Nokia the victor as the #3 player in smartphones.

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Yesterday the rumors about Michael Dell taking his company private were put to rest. It’s happening, and the deal is worth $24.4 billion. 

I’ve seen a few comments written about how Michael Dell is robbing shareholders. I don’t think that’s true at all. The stock was trading around $11 prior to rumors of a management buyout. The deal gives shareholders $13.65 per share, which is a decent premium. Obviously some shareholders may think they’re getting ripped off because the stock was already close to the buyout price before the deal was officially announced. But if the deal evaporated, the stock would surely nosedive. This logic escapes some people. Nothing you can do about that.

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Is this really a whole new Microsoft?

 

Yesterday, Microsoft reported a year over year (YoY) revenue decline of 8%.  But accounting rules being what they are, the Redmond giant deferred $1.36 billion in revenue coming from Windows 8, which hasn’t yet been released. Things like pre-sales are not counted as revenue yet because Microsoft hasn’t launched the product yet.  It’s an accounting thing, and it’s normal.  So from a business perspective, Microsoft revenues are essentially flat.     Looking at the various segments of their business, it is the Server & Tools business that is showing the best growth (8% YoY), driven by SQL Server and System Center.  The Business Division (Microsoft Office and other software) is down 2%.  The Windows & Windows Live Division was down a whopping 33% though.  This is where the revenue deferral happened, so if you adjust for the timing or revenue recognition, the business was down only 9%.  
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Behind those smiles is concern

This was another important week for the mobile giant from Cupertino.  Apple continued to improve upon its iPhone product line by launching the iPhone 5. While I believe Apple delivered exactly what investors need, none of this really changes the story for the two major comeback players - Nokia and RIM.

So let’s focus on Nokia here.  We already know they did a poor job of unveiling the Lumia 920 but I didn’t think the stock market reaction made sense.  Sure, Nokia left a lot of information off the table but they still showed off a very nice phone running Windows Phone 8, proving their lineup is becoming interesting again.  And as much as I love Apple products (I really do), I recognize that people don’t just want to buy iClones.  Apple is an amazing company with amazing products.  But they aren’t for everybody.

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Yesterday, Nokia CEO Stephen Elop took the stage to unveil two important new Lumia phones powered by Microsoft’s new Windows Phone 8 OS.  Despite positive reviews of the hardware, the stock collapsed by 16%.  

What does all this mean?  Why did the stock collapse and what does it mean for the future of Nokia and Windows Phone?  Is there a real message here, or is this simply panic and depression on the part of investors?

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One of the big news items this week was the announcement that Microsoft has updated their corporate logo for the first time in 25 years. While logo designs are not the most exciting topic we can think of, this change in appearance is also a continuing sign of a shift for the company, including a reimaging of the Microsoft brand.

The new logo (which looks to have ties to the past) fits in with Microsoft’s new Metro/Modern UI that is being rolled out across Windows 8, Windows Phone, Xbox 360, Outllook.com and even SkyDrive. The look is clean, minimalist and the opposite of gaudy. In fact, some have complained that the new logo may be too plain. That’s an odd criticism, especially since one of the top technology companies today, Apple, hardly has the most exciting logo either—yet no one complains.

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Flat or curved for the Phi--Why not both?

Although details are not confirmed and scarce at this point, many in our audience are asking and debating if the new Lumia phone headed to AT&T, codenamed ‘Phi’ has a curved screen or not.

For some, the Lumia 800’s curved glass was the pinnacle of design and elegance. Indeed, it does feel exceptionally nice in the hand both for holding and swiping across the screen. When the Lumia 900 forgo this detail, some were disappointed as the 900 instead has a completely flat screen with a raised edge.

What many in our audience may not know is that Nokia actually gave an official reason for this design change on the 900 during a Q&A sessions on their blog...

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Although Windows Phone 8 is not quite yet here, the ever-dynamic smartphone industry is once again churning and there are some big changes coming.

Today we’ve seen two stories that will both have an impact on Windows Phone--one about Samsung, the other about HTC--and we’ll see what that will mean for consumers this fall.

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$6.9 Billion profit? Not bad, not bad at all

Tonight Microsoft announced its Q4 results for fiscal 2012.  Everywhere you turn, the media is writing about how the Redmond giant just reported its first loss ever.  People writing these headlines are either clueless as to financial reporting, or in search of headline bait.  But since everyone is doing it, it’s pretty crap headline bait.

So here’s the simple truth:  Microsoft reported an extremely profitable quarter with respect to its regular operations.  On top of this it also made the decision to write down the value of assets pertaining to a company it acquired back in 2007.  The acquisition of aQuantive, a digital advertising company, didn’t contribute to Microsoft’s advertising platform as expected.  When stuff like that happens, you write down the value of those assets on the balance sheet.  The write down is a wave of the accounting magic wand.  It does not represent a cash expense. 

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Today Nokia revealed its interim financial results for Q2 2012.  Nothing too shocking, really.  Keep in mind that this is a company that was once the largest phone manufacturer in the world, driven by Symbian and feature phones. Nokia now has to find its place in the smartphone market, and this position will really depend upon the market success of Microsoft’s Windows Phone platform. 

With that in mind, Nokia shipped 4 million Lumia phones during Q2.  It may seem like a drop in the bucket compared to iPhone or Samsung (Android) numbers, but when you compare it against RIM’s latest quarter (the shipped 7.8 million BlackBerry phones), it shows some forward momentum. 

Overall, Nokia sold 73 million phones. That’s 69 million non-Lumia phones. The company’s huge challenge is to hang onto the low end of the feature phone market (under attack from Android) while also converting many of its Symbian smartphone users onto Nokia-branded Windows Phone products in the future.  It’s a tall order, but Nokia has a pretty good fighting chance...

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Although we cheered at Nokia dropping the price of the AT&T Lumia 900 a few days ago, many detractors in the tech media looked for a negative angle to the story, resulting in some damning headlines this past week.

What was the other tale they were spinning? That the Lumia 900 must not be doing well—after all, why would Nokia (and AT&T) cut the price “so soon” after launch? Forgetting the fact that “so soon” is exactly 3 months or we’ve seen price drops after launches before. That didn’t stop various media outlets like this example which boasts

“Finnish phone maker Nokia has been forced to cut the price of its Lumia 900 by half, just weeks after launching it”.

Forced? Just weeks? That story went over the ANI wire to a lot of news outlets. One problem though: they were wrong.

Read more after the break..

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Enjoy golf? Own a Windows Phone? Fancy saving $30 on a top golf app available on the platform? Executive Caddie, winner of the Windows Phone App Challenge, has had its price slashed to $0 and is within reach for anyone on a tight budget after the present purchasing spree. The 20 year old golf analysis software is a golfer's best friend when aiming for the hole-in-one. 

The Windows Phone app sports a highly accurate golf course database, on-course GPS and scorecard functionality (for up to four golfers). The GPS assistance boasts some impressive features:

  • Easily see distance to front, back, and center of the green.
  • Easily see layup distance to the 100, 150, and 200.
  • Aerial Map View showing the entire course layout.
  • Map View fairway markers and rings for the 100, 150, and 200.
  • Waypoints/markers for front, back, center, layups, bunkers, hazards, etc.
  • Zoom to your current position, the green, or the fairway.

You can download Executive Caddie from the Marketplace for absolutely nothing over the festive holiday (normally $30).

 

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As you can see in the illustration above, Android and iOS has seen growth (3% and 2% respectively) since the previous report, which we covered in late May. In that Q1 report we saw Android taking 36% of the US market, while iOS was on 26% and RIM in third place at 23%. This quarter RIM has lost 3%, plummeting to just 20% of the market.

What's interesting for us Windows Phone users is that while Microsoft has lost a single percentage overall (counting both WinMob and WP7) dropping from 10% to 9%, we're not sure where the split is between the two. In the previous report WinMob was at 9% with WP7 only on 1%, but Nielsen has failed to separate the two platforms this time around. WP7 could be seeing positive growth and hitting 2% while WinMob falls to 7%. We just don't know.

What do you guys think, do you believe that Nyan Cat can sway some people?

Source: Nielsen

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Nielsen has discovered that during last month Android witnessed its first real decline in US marketshare by one percent to 36%. The iPhone fell by a percent too at 26% while Blackberry saw an increase by one to 23%. Windows Phone 7 was shown to be sat at 1% and was tied with Palm OS. According to Nielsen, Windows Mobile still has a huge chunk of marketshare compared to WP7, which settled at 9%.

What's also interesting to note is the data usage per OS. Android is at the top with 582MB worth of bandwidth used, iOS next with 492MB, while WP7 is only at 317MB. This could well be that users on WP7 don't spend as much time online while on the go, which would prove Microsoft's advertising campaign to be correct - Windows Phone does speed up the time for you to get back to real life.

What do you think about the analysis?

Via Slareng

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This morning on Bill Reiss's blog, Silverlight Games 101, he makes some pretty good and in our opinion, even handed, criticisms of the Marketplace, specifically in relation to indie games and competing against the big Live titles.

Reiss is the developer of Popper 2 (see review) which was launched pretty early in the Marketplace. But now with developers finally having access to their numbers, he noticed just how lackluster his game was doing: 600 downloads/156 sales, even though he notes it is "...the 20th highest rated overall for all apps and games on the phone". At a $1.29 a sale, we can see that he's not exactly rolling in money from this game.

In turn, he goes through and lists a range of reasons as to why he thinks this may be the case (and he's far from the first developer to say such things). The reasons range fro the Xbox Live "filter" which gives higher precedence to those games over indie apps, no ability in the marketplace to sort by popularity, "featured" games and more,  For developers, he gives a few tips on how to better increase presence, including offer a free or lite version, social networks, etc. If we were a developer, we would think this to be a solid read.

From our perspective as consumers, "games" on Windows Phone 7 are almost too bountiful and we agree--with no real way to sort games by ratings/popularity, it makes it hard. Take for instance Decimation X2 which we covered here--by all means not selling well, though it's my #1 game by a long shot. It was discovered by accident on my part. Combined with increased users and early adopters, social networking, sites like ours for reviews, etc. we hope that developers will be able to profit. But then again, even Apple's App Store tells a similar story with the biggest, most popular apps being free and with over 300,000 programs available, we imagine most get lost in the crowd. Agree or disagree with Reiss's comments? Discuss in comments.

Source: Silverlight Games 101

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Analyst Charles Wolf of Needham and Co., is calling the launch of Windows Phone 7 a success. Wolf bases his analysis not on current numbers, but on Microsoft’s commitment to marketing Windows Phone 7. The report further states that if Microsoft continues to grow market share, Google’s Android platform could be the big loser. Much of Android’s success is due to Verizon’s Droid line of phones, which in turn can be attributed to the lack of a Verizon iPhone. A potential iPhone launch on Verizon, coupled with Microsoft’s commitment to CDMA support, could leave Google the odd man out.

Source: Needham and Co.; via: Computer World, Apple Insider

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Well looks like Microsoft made a bit of mistake when citing IDC in that recent ReMix event.

If you recall, IDC reportedly suggested that Microsoft could sell 30 million Windows Phone 7 devices, worldwide, by the end of 2011.  That number quickly burned around the web with lots of "yeah right!" tweets and the like.

Well, here's the real story: it was actually 32 million.

But that's all Windows Mobile devices (WM6.5.x) and not Windows Phone 7, which it has made no analysis nor predictions about. In fact, IDC said it won't be able to do any forecasting on Windows Phone 7 till it actually ships and they can do their own research by talking to vendors and operators.  Makes sense.

So now your task is clear: undo this damage and spread the word--Tweet and reTweet!

And IDC--yeah, sorry that you had to go through all of that.

[via PC World and IDC, p.c.]

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No doubt lots of people are clamoring at the notion that "Windows Mobile is dead" (evidently this crew has moved on from mocking Palm) and what with Motorola on WM hiatus, Palm parting ways, the eternal delay of WM7 and the perhaps too-little-to-late Windows Mobile 6.5, it is easy to see why.

On the other hand there is the stark reality: Microsoft has a lot of licensees (14 to be exact), including most recently LG, which is committed to a reported 50 devices in the next few years. HTC has lots of hits with its Touch series and their increase in market power is unrelenting.

To back this up, iSuppli, which performs market analysis, came out with a report stating that though Microsoft is down right now, it is poised for a strong comeback. It is predicting "a 15.3 percent share of the global market in 2013, second only to the Symbian operating system, which will control 47.6 percent." Basically they're going to bounce from No. 2 to No. 3 this year and back to second-place by 2012.

Expanding on this, Tina Teng, a senior analyst at iSuppli, goes on to correctly note

“To win in today’s environment, a company needs not only an operating system but also device support, an application store, a broad portfolio of applications and support from the developer community. While Windows Mobile is losing some share to competitors in 2009, most of the alternatives cannot match Microsoft’s complete suite of offerings.”

This isn't too hard to fathom either with Ballmer revamping the Windows Mobile team and making it the second top priority for the company. Heck, look at all the Live services (Bing, Mesh, MyPhone), tech previews (Recite, Deepfish), Marketplace, the Chassis-1 specifications, the Orion project, TellMe, gesture navigation, non-touch gestures/Side Sight, Silverlight, free automagic-ness and Windows Mobile 7 looks to be a monster OS with very advanced technology. Now combine all of that with 14 hardware manufacturers, market presence, integration with Windows 7, Xbox and that Zune HD thing. Ka-ching.

Microsoft has all the pieces, now it just has to merge them all into a unified and compelling OS.  One year from now we thing will be very interesting times.

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