11-19-2002, 05:00 PM
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Contributing Editor Emeritus
Join Date: Aug 2006
Posts: 8,228
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How Does The Mobile Devices Division in Microsoft Stack Up?
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.
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11-19-2002, 05:16 PM
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Pontificator
Join Date: Jul 2003
Posts: 1,466
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The bottom line is that MS isn't making any profit from its CE/Mobility group. Windows and Office are still the sacred cash cows. No surprise there.
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11-19-2002, 05:54 PM
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Ponderer
Join Date: Mar 2005
Posts: 89
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Just wait
Obviously, it is very difficult to compare MS numbers to Palm when the whole SmartPhone development is being included in these numbers. Not to mention all the other CE development that is probably going on at MS to enable smart appliances, smart toothbrushes, smart [fillin wise crack].
I would love to see the projected revenue numbers. I have to believe there are some serious spikes in revenue 2-3 years out. MS is not in this business to keep PALM from making money (what they are accomplishing right now). They are in it to make good money and to dominate the market. Nothing in their history leads me to doubt their ability to do just that.
I do love seeing the numbers, thanks for this cool post.
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11-19-2002, 05:57 PM
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Thinker
Join Date: Feb 2004
Posts: 338
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Well, let's put it this way... you don't have 40 billion $'s sitting around for nothing!
Microsoft, unlike most American corporations, does invest for the future... and if you look at the growth in the CE/Mobility revenue category from 2000 to present you understand why they feel this is a good investment. The groundwork is being laid for a "mega" business unit in a few years.
Now, the question in my mind is, what happens to the Mobility group if the Windows/Office divisions start to not do so well? While I think the monopoly of the desktop and office suites won't wither away anytime soon, you've got to wonder.
So the next time I buy a copy of Windows XP or Office XP, I'll remind myself that I'm also investing in my Pocket PC's future! :wink: Yeah, that'll make me feel better about the $'s I'm spending!!!
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11-19-2002, 06:00 PM
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Ponderer
Join Date: Mar 2005
Posts: 89
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Another thought
Isn't it possible that MS strategy is partly motivated at protecting their cash cow, Windows and Office by preventing would be competitors from building their own cash cow that funds a competitive attack on Windows and Office?
Spend an additional $33M and keep PALM from ever having money to expand beyond their current market. If MS were not in this market, I have to belive PALM would well within the black and looking to move into new markets. The desktop market would be a good progression.
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11-19-2002, 06:02 PM
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Pontificator
Join Date: Jul 2003
Posts: 1,466
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Re: Just wait
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Originally Posted by xbalance
...and to dominate the market. Nothing in their history leads me to doubt their ability to do just that.
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Except that Pocket PC's marketshare is declining, while PalmOS is growing again. It seems unlikely Microsoft will ever dominate the PDA market. Consumers vote with their wallets, and they don't seem to want PPC.
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11-19-2002, 06:04 PM
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Pontificator
Join Date: Jul 2003
Posts: 1,466
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Re: Another thought
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Originally Posted by xbalance
...keep PALM from ever having money to expand beyond their current market.
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They are expanding beyond their current markets.
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11-19-2002, 06:10 PM
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Oracle
Join Date: Aug 2006
Posts: 864
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Re: Just wait
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Originally Posted by Foo Fighter
Quote:
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Originally Posted by xbalance
...and to dominate the market. Nothing in their history leads me to doubt their ability to do just that.
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Except that Pocket PC's marketshare is declining, while PalmOS is growing again. It seems unlikely Microsoft will ever dominate the PDA market. Consumers vote with their wallets, and they don't seem to want PPC. |
We will see what their wallets say when offer a choice between a $500+ Palm (read: Tungsten) to a $199-299 Pocket PC with more features, memory, and 100% of applications working ( not 80% like Palm claims with OS 5) :roll:
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11-19-2002, 06:14 PM
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Pontificator
Join Date: Jul 2003
Posts: 1,466
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Re: Just wait
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Originally Posted by entropy1980
We will see what their wallets say when offer a choice between a $500+ Palm (read: Tungsten) to a $199-299 Pocket PC
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Palm will sell twice as many Tungstens between now and January than Dell will with its $199 PPC. It doesn't matter how cheap the Dell is because it runs a less popular OS. The market has already chosen PalmOS as the "standard" platform. A $199 PPC isn't going to change that.
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11-19-2002, 06:20 PM
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Oracle
Join Date: Aug 2006
Posts: 864
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Re: Just wait
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Originally Posted by Foo Fighter
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Originally Posted by entropy1980
We will see what their wallets say when offer a choice between a $500+ Palm (read: Tungsten) to a $199-299 Pocket PC
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Palm will sell twice as many Tungstens between now and January than Dell will with its $199 PPC. It doesn't matter how cheap the Dell is because it runs a less popular OS. The market has already chosen PalmOS as the "standard" platform. A $199 PPC isn't going to change that. |
Then the wallet arguement is null, because what your saying is price is irrelevant (which we know isn't true)people buy what is cheap (Palm has proven this in the past with their sales) just because Palm went up a couple of percentage points in a quarter or two doesn't mean squat I would argue that it was reaction to low inovation and selection of Pocket PCs which is shifting now in favor of PPCs. And while they may sell 2X the Tungstens as Dell's Axim, they won't sell 2X the Tungstens of HP's 1910,V35, and Axim.
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