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For all the stick Microsoft gets, the company sure has perfected the art of making money and sustaining stable, if not meteoric, growth. Microsoft Q1 2012 results are the best Q1 results the company has ever posted.

Big revenue, big profit

Microsoft reported quarterly revenue of $17.37 billion dollars, slightly above analysts’ expectations of $17.26 billion, and up 7 per cent on the company’s revenue for Q1 2010. Operating income was up 1 per cent year on year, totaling $7.2 billion, with net income climbing 6 per cent to $5.62 billion dollars. This was in excess of the $5.4 billion analysts had predicted.

Products performing well

In a statement accompanying the Microsoft Q1 2012 earnings report, Microsoft CFO Peter Klein said: ‘We saw customer demand across the breadth of our products, resulting in record first-quarter revenue and another quarter of solid EPS growth.’ He continued, saying: ‘Our product portfolio is performing well, and we’ve got an impressive pipeline of products and services that positions us well for future growth.’

Microsoft’s Business Division, Server & Tools team, and the Windows and Windows Live saw revenue growth of 8 per cent, 10 per cent, and 2 per cent respectively.

Windows steady, if not spectacular

The slowing growth of the Windows division was somewhat disappointing but having sold 450 million Windows 7 licenses, with their latest operating system finally surpassing Windows XP as the most used in the world, Microsoft is not really struggling. What’s more, with Windows 8 scheduled to launch in 2012, the company hopes that its new operating system will reignite license sales once available.

Windows Phone a concern

The one area of Microsoft’s business is Windows Phone 7. The mobile OS platform has struggled to gather any sort of traction or momentum, and it’s actually falling further behind in market share, as Google and Apple’s iOS platform spike. Yet, with the incoming Windows Phone 7 Nokia phones, that could change still.

Nevertheless, Microsoft Q1 2012 earnings figures are nothing to be sneezed at. Steady would be the best way of describing them.

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Microsoft on Thursday announced that it had reached an Android patent licensing agreement with Quanta. The agreement will see Microsoft receive royalties for all Android and Chrome devices sold by Quanta, adding yet another vendor who pays Microsoft for sales of devices running Google’s software.

The deal?

In a statement accompanying the press release on the new deal, Horacio Gutierrez, Microsoft’s corporate vice president and deputy general counsel of intellectual property, says: ‘We are pleased to have reached this agreement with Quanta, and proud of the continued success of our Android licensing program in resolving IP issues surrounding Android and Chrome devices in the marketplace.’

More Android hurt

Read that zinger again, from ‘proud’ onwards. Microsoft is actually taking shots at Google, further dismissing the sentiment that running Android is actually ‘free’ since most every Android device maker pays Microsoft a patent licensing fee of sorts. Quanta is just small fry next to big catches like HTC, Samsung, and potentially Motorola, who are embroiled in a legal battle with Microsoft right now over Android licensing fees.

The numbers

Google Android is fast proving to be the most lucrative thing Microsoft has ever done in the mobile devices space. Or, more specifically, patent fees charged on Android products are proving to be very lucrative. So lucrative, in fact, Asymco estimates Microsoft could be making three to five times more money off of the sale of Google Android handsets than it does on Windows Phone devices. Last week we wrote about how Microsoft could be making some $444 million in Android patent licensing fees alone in 2012.

Google is trying to remedy this situation by bringing as many mobile device patents in-house as possible through the acquisition of patent portfolios or, in some cases, purchasing large companies outright. For now, though, Android vendors have pretty much resigned themselves to the fact that they have to pay hefty licensing fees if they do not want to see their products pulled from the market completely, or deal with hefty legal fees and fines.

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It has finally happened. Windows 7 has eclipsed Windows XP as the most used desktop operating system in the world, bringing to end a more than 10-year rein over the PC OS market.

The report comes from StatCounter [via WinRumours], claiming that 40.21 percent of global desktop OSes are Windows 7, compared to just 38.64 percent market share for Windows XP. Trailing Microsoft’s big one-two is the ill-fated Vista, Mac OS X, and Linux, in that order.

Never get to Windows XP heights

Ironically, even with Windows 7 eclipsing Windows XP, it is highly unlikely that the operating system will have the near absolute dominance XP had at the height of its popularity. As recently as January 2010, XP had nearly 70 percent market share. That’s 7 in every 10 PCs in the world running Microsoft’s operating system.

However with Windows 8 scheduled to arrive in 2012 already, 7 won’t have enough time on the market to cement total dominance the way XP prior did. What’s more, XP’s performance was most certainly inflated by the poor showing that was Vista, and it is highly unlikely Microsoft would be so irresponsible as to make another misstep that epic.

With a bullet

For Microsoft, the success of their current operating system comes at a time when the once irrepressible desire for desktop PCs and laptop computers seems to be giving some way to a new generation of mobile devices – namely smartphones and tablet PCs. The difference is, with mobile operating systems, Microsoft is not the king of the castle, and the firm hopes to change that when Windows 8 is released. As such, the continued success of 7 is now serving as a beachhead from which the company will launch its next assault. At least it has eclipsed XP, which is a very good start.

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Though the Windows Phone 7.5 rollout has been a success on most accounts, one area Microsoft has seen a slight setback is in manufacturer support, with reports emerging that a Dell Windows Phone 7 Mango was not on the cards.

What WPCentral reported

The report comes courtesy of WPCentral, who confirmed through Dell sources that a device they previously spotted – the Dell Wrigley – would not be released, nor would a Windows Phone 7.5 Dell handset arrive. Daniel Rubino writes: ‘Unfortunately, we confirmed through a higher up at Dell that the Wrigley is no more and won’t be released. We’re not even sure if the device ever left planning stages, to be honest.’ He continued, saying that ‘more importantly and as expected, Dell will not be having any more “Mango” devices to offer this year or next. Sure, they’ll continue to support the Dell Venue Pro, no worries there, but it looks like they are taking a break for now.’

More Dell Windows later?

WP Central did say that there was a chance, albeit speculative and slight, that a Dell Windows Phone 8 smartphone could see release. This presumes, of course, that Microsoft will call its next mobile OS that – a highly likely fact – and it presumes that Dell will still be in the smartphone game at that point – a not-so-obvious reality.

To date the PC giant has struggled with its smartphone ambitions, with the Dell Venue Pro not selling as well as was hoped, and the Dell Android handsets like the Streak also falling short of what the company was hoping it would achieve. As such support has either been reduced or pulled for the firm’s mobile devices as Dell restructures its mobile efforts. It’s a game of wait-and-see for now.

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The rumour mill is going full tilt with reports that a Microsoft Yahoo marriage may finally happen. Reuters report that the Windows maker is considering making another takeover bid for Yahoo, four years after having a colossal $44.6 billion bid turned down.

Thin rumours

Reuters said that Microsoft may be looking to bid for Yahoo – along with other partners. The news agency cited an unnamed Microsoft executive, who says that even though the Windows maker is interested, other divisions within the big M are not so hot for the deal.

Crazy

Kara Swisher of AllThingsD dismisses these reports, saying categorically that the Windows maker isn’t even looking at Yahoo. She writes: ‘According to my sources, throughout this entire process Microsoft execs have taken pains to make it clear that they are not going to be among the bidders in any significant manner.

In addition, the company has also been communicating with bidders that — while Microsoft is interested in a stable Yahoo, given their search and advertising partnership — it would not throw in with anyone in the process yet.’

You should have said yes

In 2007, a colossal Microsoft Yahoo merger was on the cards when the Redmond giant bid an eye-watering $44.6 billion for the internet portal.  Pretty much everybody looking at the deal was convinced it was a no-brainer and that Yahoo would accept the bid. To most reasonable people’s shock, Yahoo rejected the offer, saying that Microsoft undervalued the company.

Yahoo, for all intents and purposes, has been on a downward spiral since, seeing its value decline as its display advertising market share has shrunk steadily in the face of major competitors like Facebook and even Google. This particular Microsoft Yahoo merger rumour should be treated with a skepticism. It just doesn’t make much sense at surface level.

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Though Windows Phone 7’s adoption is still not at the levels Microsoft would like them to be, the company’s mobile revenue is growing at a rapid rate on Google’s back. A report compiled by Goldman Sachs estimates that Microsoft is on course to make $444 million in patent licensing revenue from Android vendors in fiscal year 2012.

Google’s problem

Over the last 12 months, Microsoft has been threatening handset manufacturers who run on Google’s Android mobile OS platform with lawsuits if they didn’t pay a licensing fee for patents inherent in Android that Microsoft originally owned.

HTC was the first major vendor to cave into the Microsoft patent license agreement, allegedly paying Microsoft $5 for every Android device sold. A string of smaller vendors soon followed suit, with Microsoft recently announcing they had entered into an agreement with arguably the biggest Android fish of them all – Samsung.

Samsung the big difference maker

Of the $444 million Microsoft Android revenues will total, it is thought that Samsung would make up as much as $180 million of that annually. Microsoft PR announced the deal with Samsung in a press release yesterday, writing: ‘Microsoft announced today that it has signed a definitive agreement with Samsung Electronics Co. Ltd., to cross-license the patent portfolios of both companies, providing broad coverage for each company’s products. Under the terms of the agreement, Microsoft will receive royalties for Samsung’s mobile phones and tablets running the Android mobile platform. In addition, the companies agreed to cooperate in the development and marketing of Windows Phone.’

A serious problem?

The Microsoft Android revenue stream is undoubtedly an annoyance to Google, but there’s a high chance it could become more than just irritating – over time, it could serve as a deterrent for developing Android handsets, with manufacturers diversifying to their own platforms or some other third party OS. While that eventuality seems highly unlikely for the currently high-soaring Android platform, who knows what the future holds.

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Microsoft today issued a press release saying that it has entered into a licensing agreement with Samsung for Android devices sold, as well as getting the South Korean company to commit even more resources to Microsoft’s Windows Phone 7 mobile OS.

Royalties

The key part of the press release – the opening paragraph – reads: ‘Microsoft announced today that it has signed a definitive agreement with Samsung Electronics Co. Ltd., to cross-license the patent portfolios of both companies, providing broad coverage for each company’s products. Under the terms of the agreement, Microsoft will receive royalties for Samsung’s mobile phones and tablets running the Android mobile platform. In addition, the companies agreed to cooperate in the development and marketing of Windows Phone.’

So, in short, Samsung sells a Galaxy anything – smartphone or tablet – Microsoft gets paid. Any device that Samsung makes that runs on Android, Microsoft gets paid. Also, Samsung must work on Windows Phone 7, whether or not it wants to.

How much is at stake?

While the press release announcing the Microsoft Samsung patent licensing agreement did not divulge how much money was at stake, when we first reported on an agreement of sorts being ironed out, an amount of $15 per Samsung Android device sold was being thrown around. While we cannot be certain that was the amount settled on – it probably was not, in exchange for Windows Phone 7 support – that would be a large sum of money.

For example, apply that $15 figure retroactively – which might be part of the agreement – to the Galaxy S2 which has just sold 10 million units, and that’s $150 million dollars of virtually pure profit that Microsoft gets from sales of a device running on Google’s software. While the Samsung Microsoft patent licensing agreement puts that legal battle to rest, it only serves to draw more attention to just how ‘free’ making devices that run on Android actually is. Here’s a clue. It isn’t.

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Now that the dust has settled on Microsoft’s exciting Windows 8 unveil from a product side, attention has been shifted to where all the action really takes place – the business side. More specifically, it’s widely believed that if Microsoft has any plans for widespread adoption on tablet PCs, the company will need to revise the business model with which it sells Windows 8 licenses, or they may price themselves out of the market.

The iPad price point

Being first to market and still by far the biggest-selling device of the lot, Apple’s iPad has set something of a price ceiling for tablet PCs. As things stand, many companies are struggling to compete with that pricing when employing Google’s free Android mobile OS platform. This is where Microsoft, with its expensive Windows licensing, comes unstuck.

Can you teach an old business (model) new tricks?

Dan Frommer of Business Insider notes that, at present, Microsoft makes between $50 and $100 for each PC sold, with the exact Windows licensing fee dependent on various factors.

He then says: ‘But for tablets that need to be $500 or cheaper to compete with the iPad, the idea of manufacturers spending $50 to $100 per device for a Windows license is a non-starter. Especially if tablet makers are choosing between “free” Android as the alternative. (Who knows how competitive Android will be in a year, when Windows 8 tablets are supposed to be ready.)’

Bang on the bucks

While Frommer presents viable solution to Microsoft’s problem – the entire post is a worthwhile read – for our purposes he brings to light just how much mobile devices have begun encroaching on Microsoft’s once unassailable dominance in the operating system business. Watching how it all unfolds will no doubt prove interesting, but it’s a problem I imagine Steve Ballmer and his Windows 8 team would rather not have.

Can Microsoft make a comeback in a mobile space dominated by Apple and Google?

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Microsoft has finally come out to say when – more or less – the long awaited Windows Phone 7.5 Mango update is arriving. In a blog post, the company confirmed that the long-awaited software update would begin rolling out in the next week or two.

Next week or two

Writing on the Windows blog, Eric Hautala, who is the GM of Customer Experience Engineering, says: ‘For months, we and dozens of our partner companies have been laying the groundwork for the Windows Phone 7.5 update – and making solid progress. As a result, we now expect to start rolling it out in the next week or two.’

Staggered rollout

As is the case with third-party mobile OS platforms, the Windows Phone 7.5 Mango update will not be rolled out to every single device on every single carrier on the same day. Hautala explains that the company’s Where’s My Phone Update? Table, which shows worldwide rollout status of WP7 updates, will be refreshed and updated to reflect this new release schedule.

The big push

In many ways, Microsoft has been treating the Windows Phone 7.5 Mango update as a complete re-release. The mobile operating system comes with hundreds of new features – as small as copy-paste and as big as Skype integration – and brings Microsoft’s OS close to what is offered by its biggest competitors – Android and iOS.

In terms of handset manufacturers supporting the Mango update, HTC recently revealed the Titan and Radar phones that will be running on WP7. LG, Samsung, and Nokia are expected to release handsets for the refreshed operating system soon, too. Speaking of Nokia, the company may actually be quite close to D-Day, if the recent firing of a Microsoft employee who careless tweeted about his experience with a WP7 Nokia phone is anything to go by.

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To date, Microsoft Bing losses top $5.5 billion (£3.56bn) at a rate of around $1 billion per quarter in its desperate attempts to narrow the gap between itself and the all-conquering Google Search. This astonishing figure was revealed during a CNN Money conversation about the service and what it has achieved in North America, even though it is hemorrhaging money.

Still part of the plans

Bing Director Stefan Weitz, who is well aware of the financial burdens such heavy losses can put on a company, says it is ideal that the Microsoft Bing losses happen within a company as powerful as Microsoft. ‘We are able to try things with much more flexibility,’ he explains. ‘If we make a mistake, it’s not going to take down the company.’

Old habits die hard

Having said that, the search team remains committed to their efforts to fundamentally reorganize the way people use the web, as opposed to taking Google on directly. The problem is, not only do they have the fundamentally difficult task of technically besting Google – an achievement in itself – Bing has to also break the habits of billions of internet users and millions of advertisers.

He says: ‘Our challenge is that no one wakes up in the morning and says, “I really wish there was a better search engine.” That’s why, for us, it’s always been about figuring out how to accomplish more than we thought was possible with a search engine. Eventually, people will expect to do more with search, and if they can’t, they’ll be disappointed.’ His hope is Bing will be the service that can do more, and Google will not.

Burning ledger

Nevertheless the sheer scale of the Microsoft Bing losses are terrifying. Microsoft clearly feels they need to throw money at the problem in order to fix it in addition to (or instead of) innovating Google out of the game. And given Bing has very little presence outside of North America, its proving increasingly difficult to determine how soon before either the tide turns for Bing, or investors grow anxious with that amount of money being misspent.