Tuesday, November 19, 2002
How Does The Mobile Devices Division in Microsoft Stack Up?
Posted by Ed Hansberry in "THE COMPETITION" @ 09:00 AM
About once a quarter, I'll post the financial results of one of the Pocket PCs competitors, usually Palm. It is easy to do because Palm is a stand alone company. Microsoft, on the other hand, is more of a big conglomerate of technology items. Picking the Pocket PC performance out of that can be like trying to highlight just the letter "i" with your stylus.
Microsoft recently reorganized their business into 7 segments which makes this endeavor a bit easier. That and the Excel spreadsheets downloadable from their web site. ;) The 7 divisions are:
• Windows and Embedded Operating Systems
• Office, other standalone apps, Professional Product Support (those $245 phone calls I presume)
• MSN Networks and access
• X-Box, consumer hardware/software, PC Games, TV Platform
• Great Plains, bCentral, Navision
• Server platforms, .NET Enterprise, CALs, etc.
• Pocket PC and Smartphone
The revenue is broken down for the last 5 quarters below with the CE/Mobile Device line highlighted:
See below for a larger chart that goes back to the summer of 2000. To put these numbers in perspective, PalmSource, the Palm OS division which includes sales from ebook seller Palm Digital Media, formerly known as Peanut Press, had $15.2M in sales for their quarter ended August 30, 2002.
I was actually a bit surprised that the Mobile Devices division of Microsoft is generating more quarterly revenue than PalmSource, even more so when you consider PalmSource has non-OS revenue from ebook sales, though I don't know what that number is. Now, according to a CNET article the Mobile Device division lost $33M on that $17M in sales. Contrast that to the $6M PalmSource lost on $15M in sales. Again, it isn't totally apples to apples here for several reasons.
The first reason is, I don't know is how much additional revenue Microsoft earned from additional Client Access Licenses (CALs) for Terminal Server, Exchange or SQL Server that were purchased to support Pocket PCs in the enterprise, nor how much money was generated from sales and CALs of Mobile Information Server or Windows 2000 Server, or additional sales/upgrades of MSDN or developer tools for mobile application developers. Microsoft also sells consulting services to some of their customers and I am sure there is some revenue for that in the Q1 numbers, but again, no clue how much. All of those numbers (CALs, Server products, consulting) are buried in Server Platform line above. PalmSource includes all of their server and dev tool revenue in that $15.2M. I doubt very seriously if it does much to close that $33M loss for Microsoft, but it does eat away at some of it. It isn't unreasonable to assume that some desktops were upgraded from Windows 95 or Office 95 as people deployed the new Pocket PC 2002 devices which require Windows 98 and Office 2000 at a minimum. Again, not staggering dollars, but some.
The second reason is, Microsoft is swinging for the fences with their Smartphone platform. They started the Smartphone as a Pocket PC scaled down, but that lasted about 3 minutes before they decided a few years ago the best route was to start from the basic Windows CE operating system and build an OS for a phone from the ground up. To date, Palm's offerings in this area are the basic OS4.x operating system that at best has been tweaked for phones, hence the need to whip out a stylus for many tasks. That swinging on Microsoft's part is a huge amount of R&D expenses and is really competing in an arena PalmSource has cut major corners on. Furthermore, PalmSource has allowed its licensees, like Handspring, to shoulder some of that development cost in products like the Treo.
So what can we draw from all of this number crunching? Not much really. With $17M if revenue in their Mobile Device division that has at best 30% market share world wide compared to $15.2M from PalmSource with the bulk of the rest of the market share, it does suggest Microsoft has the better business model. I know with the $6M loss PalmSource is showing is much better than the $33M that Microsoft is showing, but again, Microsoft is poised for staggering growth in the coming years and is preparing to battle the real contender in the mobile communication space. That is Nokia, not PalmSource. Spending $2 in expenses, much of which is R&D, for every $1 in revenue shows Microsoft is working for the next 4-5 years, not next quarter. Being subsidized by Windows and Office which collectively lose $33M each quarter in rounding errors ;) really helps the Mobile Device group to keep their eyes on the future and not next week's conference call with Wall Street analysts.
Microsoft recently reorganized their business into 7 segments which makes this endeavor a bit easier. That and the Excel spreadsheets downloadable from their web site. ;) The 7 divisions are:
• Windows and Embedded Operating Systems
• Office, other standalone apps, Professional Product Support (those $245 phone calls I presume)
• MSN Networks and access
• X-Box, consumer hardware/software, PC Games, TV Platform
• Great Plains, bCentral, Navision
• Server platforms, .NET Enterprise, CALs, etc.
• Pocket PC and Smartphone
The revenue is broken down for the last 5 quarters below with the CE/Mobile Device line highlighted:
See below for a larger chart that goes back to the summer of 2000. To put these numbers in perspective, PalmSource, the Palm OS division which includes sales from ebook seller Palm Digital Media, formerly known as Peanut Press, had $15.2M in sales for their quarter ended August 30, 2002.
I was actually a bit surprised that the Mobile Devices division of Microsoft is generating more quarterly revenue than PalmSource, even more so when you consider PalmSource has non-OS revenue from ebook sales, though I don't know what that number is. Now, according to a CNET article the Mobile Device division lost $33M on that $17M in sales. Contrast that to the $6M PalmSource lost on $15M in sales. Again, it isn't totally apples to apples here for several reasons.
The first reason is, I don't know is how much additional revenue Microsoft earned from additional Client Access Licenses (CALs) for Terminal Server, Exchange or SQL Server that were purchased to support Pocket PCs in the enterprise, nor how much money was generated from sales and CALs of Mobile Information Server or Windows 2000 Server, or additional sales/upgrades of MSDN or developer tools for mobile application developers. Microsoft also sells consulting services to some of their customers and I am sure there is some revenue for that in the Q1 numbers, but again, no clue how much. All of those numbers (CALs, Server products, consulting) are buried in Server Platform line above. PalmSource includes all of their server and dev tool revenue in that $15.2M. I doubt very seriously if it does much to close that $33M loss for Microsoft, but it does eat away at some of it. It isn't unreasonable to assume that some desktops were upgraded from Windows 95 or Office 95 as people deployed the new Pocket PC 2002 devices which require Windows 98 and Office 2000 at a minimum. Again, not staggering dollars, but some.
The second reason is, Microsoft is swinging for the fences with their Smartphone platform. They started the Smartphone as a Pocket PC scaled down, but that lasted about 3 minutes before they decided a few years ago the best route was to start from the basic Windows CE operating system and build an OS for a phone from the ground up. To date, Palm's offerings in this area are the basic OS4.x operating system that at best has been tweaked for phones, hence the need to whip out a stylus for many tasks. That swinging on Microsoft's part is a huge amount of R&D expenses and is really competing in an arena PalmSource has cut major corners on. Furthermore, PalmSource has allowed its licensees, like Handspring, to shoulder some of that development cost in products like the Treo.
So what can we draw from all of this number crunching? Not much really. With $17M if revenue in their Mobile Device division that has at best 30% market share world wide compared to $15.2M from PalmSource with the bulk of the rest of the market share, it does suggest Microsoft has the better business model. I know with the $6M loss PalmSource is showing is much better than the $33M that Microsoft is showing, but again, Microsoft is poised for staggering growth in the coming years and is preparing to battle the real contender in the mobile communication space. That is Nokia, not PalmSource. Spending $2 in expenses, much of which is R&D, for every $1 in revenue shows Microsoft is working for the next 4-5 years, not next quarter. Being subsidized by Windows and Office which collectively lose $33M each quarter in rounding errors ;) really helps the Mobile Device group to keep their eyes on the future and not next week's conference call with Wall Street analysts.
