It reported its best quarter yet, with quarterly revenue of $20.89 billion, up about 5% year-over-year. Although Windows division revenue was down nearly 6%, Servers & Tools revenue growth of 11% and Entertainment & Services revenue growth of 15% more than offset the slowdown. Windows sales.
The rest of 2012 is going to be a crucial time for Microsoft as it launches Windows 8 and a host of other new products. We expect Windows sales to show a significant jump after the launch of Windows 8 in mid-2012.
We have a Trefis price estimate of nearly $32 for Microsoft, about 10% above its current market price. Here are the most important factors that are expected to have the most impact on Microsoft stock price going forward.
Check out our full Microsoft analysis
Desk
Office is Microsoft’s most valuable business and accounts for over 30% of its value. Revenue from Office and other commercial offerings such as Lync, Exchange, Dynamics and Sharepoint grew nearly 3% year-over-year this quarter, with Dynamics and Lync seeing the strongest growth.
Microsoft has sold more than 200 million licenses of the Office 2010 suite since its launch. It currently holds around 95% of the productivity software market. Although the market share is expected to decrease slightly due to increasing competition, we expect a steady increase in revenue from this division.
the Windows
Windows is Microsoft’s second most valuable division, accounting for almost 25% of its value. There was a 6% decline in Windows revenue this quarter as Windows sales slowed. We expect a significant increase in sales once Microsoft launches Windows 8 in mid-2012.
Windows 8 will target the desktop, laptop and tablet market and is expected to sell more licenses than Windows 7, which has sold nearly 525 million licenses to date. The launch of new thin and ultraportable laptops called ultrabooks should also help Windows 8 sales.
Xbox and Windows Phone
We expect the Entertainment and Devices division, which primarily includes Xbox, Kinect, and Windows Phone, to show the strongest percentage growth in the coming years. This division’s revenue grew 15% this quarter and is expected to grow even faster in 2012 as Windows Phone gains traction in the smartphone market.
Microsoft has sold over 66 million Xbox consoles and 18 million Kinect sensors since its launch. The launch of Kinect for Windows is expected to drive further revenue growth in the next quarter. Xbox currently holds around 20% market share in game consoles. We expect it to increase throughout the forecast period.
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