CIO — While 2011 was not a breakthrough year for Microsoft products, the company held steady amid criticism regarding its absence from the tablet market, its late arrival to the cloud, and low sales for Windows Phones.

However, financially the bottom line was not a problem in Redmond. For fiscal 2011, Microsoft notched a record-breaking $69.9 billion in revenue, up 12 percent from fiscal 2010. And it did this despite sluggish sales of Windows and PCs.

Despite the modest increases in sales, Windows is still a massive revenue generator for the cash-rich Microsoft. Add to that strong sales of Xbox and Xbox Kinect and the tight grip Microsoft has on the enterprise with Office, SharePoint, Exchange, Lync and Windows Server licenses, and the company will continue to thrive financially in 2012, according to industry analysts.

"There are challenges in areas like online services and mobile, but Microsoft's lucrative Server and Tools and Business Divisions are healthy and will stay that way," says Roger Kay, an analyst and president of research firm Endpoint Technologies.

However, with more employees bringing their own non-Windows devices to work and more back-end technology moving to the cloud, Microsoft can't rely on desktop software licenses forever.

To that end, Microsoft is making progress with cloud services like Office 365, Dynamic CRM Online and Windows Azure. It is also making Office apps like OneNote and Lync available on iPads and iPhones. The success of these cloud services should keep the company balanced in the challenging years ahead, say analysts.

Still, It's All About Windows 8

Microsoft's biggest challenge in 2012, according to industry watchers will be the roll out of Windows 8 — specifically getting Windows 8 running on fast and light tablet PCs.

"It is critical that Microsoft begin making inroads against the iPad," says Wes Miller, a VP at independent research firm Directions on Microsoft.

The success of Windows 8 is so important, says Miller, because it affects all parts of the Microsoft machine.

For instance, despite the huge success of Office 2010 — and the moderate success of cloud counterpart Office 365 — Office is still tied to Windows, and it faces the challenge of staying relevant in an iPad world.

"In some ways, unless an iPad version appears, the next version of Office is largely dependent on the market success of Windows 8," says Miller.

The Pressure Is on Windows 8 from Two Fronts

Windows 8 will be entering a hostile environment when it becomes generally available in the second half of 2012.

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