Preston Gralla

Microsoft earnings report show Windows' glory days are long past

January 20, 2012 8:56 AM EST

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Microsoft's earnings report yesterday shows that although Windows is the product most associated with the company, its best days are well behind it. Windows-related revenue dropped six percent, while other parts of the company had solid growth. Expect more quarters like this in the future.

The company's earnings for the quarter overall was $20.89 billion, up 5 percent compared with the same quarter last year. Divisions other than Windows did quite well. Here's the rundown on them, including Windows:

  • The Business Division (Office, Exchange, and Sharepoint) had $6.28 billion in revenue, up 3 percent compared to a year ago.
  • The Server & Tools Division (Windows Server, SQL Server, System Center) had $4.77 billion in revenue, up 11 percent compared to a year ago.
  • Windows & Windows Live Division had $4.74 billion in revenue, down six percent compared to a year ago.
  • The Entertainment & Devices Division had $4.24 billion in revenue, up 15 percent compared to a year ago.
  • The Online Services Division had $784 million in revenue, up 10 percent compared to a year ago.
Notice that only the Windows division had less revenue compared to a year ago? And that in terms of revenue, it's only number 3 at the company? If things continue on this course, it won't be long before it drops to number 4, falling behind the surging Entertainment & Devices Division.

This quarter isn't an anomaly; the trend has been going on for quite some time. Last quarter, the Windows & Windows Live Division managed to eke out a 2% increase compared to the year previous, even while overall Microsoft had a 7% growth in revenue. But the quarter before that, the division saw a one percent drop, and it had dropped the quarter before that as well. That means that in three out of the last four quarters, Windows revenue has fallen compared to the year previous.

That's why Windows Phone is so important to Microsoft. Mobile is clearly the future; certainly one of the reasons Windows revenue continues to drop is that the computers that people increasingly use are in phones and tablets, not in PCs and laptops. That trend will only accelerate.

So yes, Microsoft will continue to reap significant profits from Windows. But its glory days are clearly gone.