reversal of fortune

Microsoft’s great quarter suggests its next CEO should be Steve Ballmer

January 23, 2014
January 23, 2014

Microsoft’s results for the fourth quarter are certainly surprising. Revenue? Up $3 billion year-over-year.

Profit edged up too, from $6.38 billion a year ago to $6.56 billion in the same quarter this year.

And about that dog of a tablet, the Surface, which forced Microsoft to take a nearly $1 billion write-down: Revenue on Surface more than doubled between this quarter and the one previous, from $400 million to $893 million, on account of Microsoft’s release this quarter of the much-improved Surface 2 and the Surface Pro 2.

Even search advertising revenue on the company’s search engine Bing grew 34%, even or perhaps because Microsoft is paying Yahoo 31% of Yahoo’s revenue to use Bing as its search engine.

Still, one good quarter does not a turnaround make. But it’s worth noting that this constitutes more than a turnaround; it’s record revenue for Microsoft. Yes, the company is enormous, sprawling and supposedly impossible to manage. But despite softness in the PC market (which led to a 3% decline in Windows revenues since last quarter), Microsoft’s kitchen sink approach to providing businesses with IT suddenly looks like a strength.

Say what you will about the death of the PC, but Microsoft’s prospects are looking up in its cloud-based subscriptions to its Office software, cloud data services including SQL Server and hardware. Revenue from consumer sale of Windows and other software is down, but offsetting that decline is the huge increase in sales of consumer hardware.

Could it be that the business strategy laid out by the much-maligned CEO Steve Ballmer—the cloud-based software subscriptions, operating systems (Windows) and hardware (Surface, and eventually Windows Phone)—is finally bearing fruit? If so, it’s not inconceivable that Microsoft’s board and shareholders gave up on Ballmer too soon.

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