Microsoft just made it harder to break up the company

Microsoft just made it harder to break up the company

CCRadmingames console, Microsoft News

Latest sales for Surface, Xbox, and Bing present the next CEO with an increasingly tough decision.

It’s too early to talk about the return of the juggernaut of yesteryear after one quarter of strong results, but Microsoft’s latest financial quarter suggests that — new CEO or no — the company is recovering from recent missteps.

“In summary, we had a very good quarter,” CFO Amy Hood said during a conference call Thursday to discuss the company’s fiscal second quarter.

That was an understatement. Sales and earnings beat Wall Street handily, and investors snapped up shares in after-hours trading (even after Hood narrowed full-year revenue guidance to between $31.2 billion and $31.5 billion.)

But picking through the numbers, there’s another takeaway for whomever might be in line for the top job: They’ll now need to think long and hard before taking up the recommendations of those who want the new boss to orchestrate Microsoft’s exit from the consumer device and Internet search businesses. Consider the following:

  • Microsoft sold 3.9 million new Xbox One devices in the quarter and also outsold thePlayStation in December. It sold another 3.5 million Xbox 360s during the quarter.
  • Even though the product still loses money, Surface revenues more than doubled to $893 million from $400 million in the previous quarter.
  • Search revenue climbed 34 percent. (Microsoft says Bing now accounts for more than 18 percent of all Internet searches in the US.)

Those are the right sort of trend lines any CEO would want to see. Of course, whoever replaces the outgoing Steve Ballmer could still decide that Microsoft would be stronger as a “pure-play” enterprise company. Several analysts have argued that’s the smart way to go. What’s more, no less than co-founder Paul Allen’s investment group Vulcan Capital has urged such a move.

It’s not entirely crazy. For instance, that’s what IBM did when it sold its PC business a few years ago to Lenovo. (Earlier today IBM announced the long-rumored sale of its x86 server business,

But while the shift to a more mobile future has not been without several hitches, it’s going to be hard to convince the board to dump what appears to be increasingly healthy businesses — especially given declining PC sales and what that means for future sales of Windows. In the quarter, Microsoft said that Windows OEM revenue fell 3 percent, due mostly to what it described as “continued softness in the consumer PC market.”

And in IBM’s case, Big Blue was a congenital big bust when it came to finding a way to profitably deal with consumers. There’s a long history of IBM missteps in the consumer market, dating back to the mid-1980s when it operated a nationwide chain of computer retail stories. Lou Gerstner was right to get the company out of a money-losing business to focus on more value-added consulting and high-end enterprise markets.

Microsoft has had its own issues figuring out what consumers want — Zune, Microsoft Kinanyone? — but some perspective is in order. Meanwhile, give Microsoft props for listening to customers complaining about what needs fixing. It may take time, but it does a good job incorporating user feedback to improve later versions of existing products — Windows and Internet Explorer being the best examples.

If the new boss buys into the argument that the fastest-growing parts of the tech business will continue to be in mobility and Internet search, the latest numbers offer a compelling reason to maintain the status quo. Maybe that won’t be the decision, but I’d like to hear a convincing counterargument.