Wall St. was disappointed by the sales of Microsoft’s (NASDAQ: MSFT) Windows products as the world’s largest software company announced earnings for the quarter which ended March 31. Microsoft’s two enterprise software units did very well, which raises the issue of whether Microsoft can become the next Oracle (NASDAQ: ORCL) or IBM (NYSE: IBM) by pushing itself further into the business of marketing software to businesses.

Microsoft’s Windows revenue fell from $4.65 billion in last year’s quarter to $4.45 billion in the most recent period. That does not seem like too much of a drop, but Windows is the flagship business of the company. A global rotation away from PCs and toward tablets and smartphones will limit the ability of Windows to recover.

The news from Microsoft’s business-to-business units was much better. The Business Division’s revenue rose from $4.34 billion to $5.25 billion. It is now the largest division at Microsoft and its most profitable with segment profits of $3.17 billions to Window’s $2.76 billion. The Servers and Tools operation is nearly as large as Windows. It has revenue of $4.1 billion in the first quarter and is growing quickly

Microsoft’s revenue for the first quarter was $16.43 billion. Oracle’s are just above $9 billion. But, Oracle’s growth rate is faster. Oracle’s market cap is $179 billion to Microsoft’s $224 billion. And, Oracle’s shares are up 35% in the last year. Microsoft’s are down 13%.

Microsoft has begun to shift its emphasis to Windows Mobile as a way to offset a drop in the sales of PC-based products. It has also started to market cloud based products to compete with offerings from firms like Google (NASDAQ: GOOG). Each of these two efforts is a long-shot, particularly an assault on the smartphone OS industry which is already dominated by Apple (NASDAQ: AAPL) and Android.

Microsoft not only has its own strong enterprise businesses; It has $50 billion in cash. That is enough for it to buy several business-to-business firms like Salesforce.com (NYSE: CRM), which has annual revenue of close to $2 billion.

Microsoft could stake its future on the search business, game consoles, and a migration of Windows to portable devices. Its chances of becoming a dominant force in the enterprise business are much better.

Douglas A. McIntyre

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