When Microsoft's earnings came out yesterday, I had to do a double-take because it was hard for me to process just how strong these numbers truly were. I knew the company was poised for a strong quarter, but it was the breadth of its success, and optimistic guidance that took me, and so many investors, by surprise.
I had the chance to speak with the company's CFO Chris Liddell on the air earlier this morning. Needless to say, he had lots to say and for a normally conservative guy at a normally conservative company, he had lots of optimism to share. His words, and Microsoft's numbers, are going a long way toward lifting a lot of listing tech boats on the Street today. (Read my second post with Liddell here.)
In this post, I want to focus on Microsoft's entertainment and device division, a beleaguered division at the company that lost billions as it tried to gain traction in the marketplace, first against no less a competitor than Sony . But then later, Nintendo .
So in the midst of all that stiff competition, $3.06 billion in revenue and more importantly $357 million in profits. That bottom line performance more than doubled the division's performance in the previous quarter. Seems like both Xbox and Zune are more than merely "other" Microsoft initiatives; they're actually now real contributors to the bottom-line.
I asked Liddell about that. He told me when it comes to the gaming sector, it's all about the "attach rate," the number of games and accessories consumers buy along with the console itself:
"We're now at a stage where we sell about 7 games per console and that's a record certainly for any console and relative to history. So people are now actually spending more on the games and accessories than they are on the underlying console, so that business model that we put in place the last couple of years is certainly starting to fire."
And because of that, entertainment and devices is hardly a one-hit wonder: this hardware could become the gift that keeps on giving for Microsoft's bottom line.
(In my next post: Microsoft's surprising success in its online business. Watch out Google?)