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  (Source: ExtremeTech)
Investor bloodbath awaits as Microsoft tries to revamp its company

If you're trying to restructure your company into a devices and services firm, it's a pretty bad sign when you announced a $900M USD (yes, million) hit due to the sales failure of one of your flagship devices.  That's the reality facing Microsoft Corp. (MSFT) who announced earnings late this afternoon following last week's announced leadership and direction shakeup.

Things appear headed in an ugly direction for Microsoft's stock, which was trading down nearly 6 percent in after-hours.

The Surface charge comes largely prior to the $150 USD price drop on the unpopular Surface RT variant, meaning more big charges could await.  If Surface is a "real business" as Microsoft CEO Steve Ballmer proclaimed ebulliently in Feb., it appears to be failing business.


Surface was the surprise write-down on Microsoft's balance sheet.

Aside from the obvious concern -- losing money -- the Surface charge also represents the overall volatile state of Microsoft's quarterly earnings due to hordes of charges.  Overall Microsoft recorded a one-time write down of $782M USD on the Office Upgrade Offer, which dropped the business division's revenue almost in half to $722 USD (leaving revenue growth virtually flat at 2 percent).  The balance sheets reminds of two other large hits -- the $540M USD Windows Upgrade Offer and $733M USD European Union antitrust fine -- which Microsoft took in the last 12 months.

Here's Microsoft's total balance sheet.
Microsoft Earnings

Note that the online unit had a $6.2B USD (yes, billion) write-down last year, so the actual losses trimming is smaller than it looks.  But overall both the entertainment (Xbox, Windows Phone) and online services (Bing) units trimmed their losses by $100M USD or more.  Microsoft cites Comscore's numbers which indicate Bing now controls 17.9 percent of the search market.

But the clear loser was the Windows unit, whose revenue fell from $2.422B USD to $1.099B USD as PC sales slumped.

Overall analysts had hoped for earnings of around 75 cents per share ($6.33B USD) on a revenue of $20.73B USD (including the Office writedown, but not the Surface one).  Instead they got earnings of around 66 cents per share ($5.56B USD) once you removed the 7 cents per share (unexpected) Surface writedown. In other words, even excluding the unexpected Surface financial hit, Microsoft's profit fell nearly a billion dollars short of expectations due to weak Windows sales.

Steve Ballmer w Windows 8
Surprise! Windows 8 isn't selling well. [Image Source: AFP]

Microsoft has a huge cash pile -- $77B USD, so it can afford to drop a billion here or there.  And the company did announced that Office 365 (subscription) revenue was up to $1.5B USD, which should help to make the balance sheet flatter and more predictable.

But with Windows device sales in disarray, the Xbox One receiving an icy reception from gamers, and no clear breakthrough for Windows Phone/Surface, Microsoft has a lot of questions to answers in the year to come.  The answers will largel hinge on the current half as Microsoft's units reorganize and as Windows/Windows Phone 8.1 product launches.  Succeed and Microsoft may see a break in investor tension -- fall short and it will likely be hammered once more.

Source: Microsoft



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Microsoft's reset
By Tony Swash on 7/18/2013 7:00:12 PM , Rating: 0
Microsoft's transformation from a divisional to a functional organisation structure was a response to the sort of problematic performance that was clearly coming down the pipeline. Will it work or will it make matters worse?

This is an interesting perspective in part 2 of Ben Thompson's analysis of the changes at MS on his Stratechery site, worth a read:

http://stratechery.com/2013/the-uncanny-valley-of-...




RE: Microsoft's reset
By greenchinesepuck on 7/18/2013 8:02:45 PM , Rating: 4
You guys should carefully consider what Swash is dumping on you here, this anti-MS article has some interesting anti-Apple points as well, such as "visionary leader is a must for the functional company like Apple but now Jobs is gone so..." and also this:

"If Sinofsky, one of the most iron-fisted executives you will ever see, only saw 25% of what mattered despite sitting at the only nexus for information flow (as noted above), what chance does Ballmer have sitting at the intersection of Windows, Office, Service, Xbox, Bing, etc.?

This is something for Apple to be concerned about, as well. Things like TVs and watches are fun to talk about, but they exact a real cost on the leadership team’s ability to manage the organization."

Basically what happens in the industry now is that Apple and MS are sort of on the convergence path, meaning that Jobs's Apple was 100% functional but with his death it won't be as successful unless it stops to be so strictly functional and vertical integrated company. On the other hand, MS has long suffered from a silo fight issue where divisions ignored each other and say Xbox division didn't give a fuck about Windows Phone and hence WP was relegated to junk product even inside the MS. What Ballmer is trying to do is to stop those fights between silos, and bring a lot of people together from different divisions and FORCE them to work on the WELL-INTEGRATED products.

You can't do this in divisional organization by definition because in such an organization every division is a local well fortified fiefdom that fights against others and duplicates products all the time because of the "not invented in our division/silo" syndrome. Just look at the sad fucking joke the Windows media software turned into, they have WMP, Zune, Xbox Music and Media Center, all media players with lots and lots of overlapping functionality. The amount of duplicate work wasted on all this dead crap (well, except Xbox Music) is impossible to measure but it must be huge.

So Ballmer's reorg is going to kill all these ugly inefficiencies. Hopefully the new MS will focus on the ONE single pivotal product and try to make it as good as possible, instead of producing similar crap from multiple teams that does same things but only slightly differently.

I'm just suggesting you guys to take anti-MS ramblings of Swash with a seriously big grain of salt, that is all :) We all here know he has an agenda on this. So think for yourself, do not blindly trust the posts of anti-MS "analists" Swash is usually pushing here.


RE: Microsoft's reset
By retrospooty on 7/18/2013 8:34:11 PM , Rating: 5
"I'm just suggesting you guys to take anti-MS ramblings of Swash with a seriously big grain of salt, that is all :) We all here know he has an agenda on this. So think for yourself, do not blindly trust the posts of anti-MS "analists" Swash is usually pushing here."

You say that as if you think anyone here listens to anything Tony says... Dont worry, no one does. Certainly not on any subject relating to Apple or its competition. Tony is here to serve his agenda, nothing else. We all know that.


RE: Microsoft's reset
By bsd228 on 7/18/2013 9:44:05 PM , Rating: 2
quote:
So Ballmer's reorg is going to kill all these ugly inefficiencies. Hopefully the new MS will focus on the ONE single pivotal product and try to make it as good as possible, instead of producing similar crap from multiple teams that does same things but only slightly differently.


a reorg without a meaningful change in culture is just an exercise in cubicle shifting. Put less delicately....the same management and ICs that got them into this mess are there, so its wishful thinking to expect a step forward here.


RE: Microsoft's reset
By karimtemple on 7/19/2013 8:25:14 AM , Rating: 3
A strong enough and thoughtful enough reorg could mean a change in culture. I've heard more than one MS employee account of the disjointedness of the company -- that internally it's really much more of a federation of companies. If they somehow managed to actually combine what they're combining, increasing communication and collaboration, a lot of good could come from this even from the same people.


RE: Microsoft's reset
By BRB29 on 7/19/2013 11:28:01 AM , Rating: 2
Jack Welch did it and it was even on a larger scale. Why can't Ballmer?


RE: Microsoft's reset
By karimtemple on 7/19/2013 3:14:06 PM , Rating: 2
FADE IN:

DAILYTECH.COM - AFTERNOON

SCROLL DOWN TO POST.

BRB29
Implication that Steve Ballmer is comparable to Jack Welch.

CUE LAUGH TRACK.

SCENE.


RE: Microsoft's reset
By Mitch101 on 7/19/2013 11:02:57 AM , Rating: 2
quote:
take anti-MS ramblings of Swash with a seriously big grain of salt, that is all

I have to agree with that. Sometimes its beneficial to look through someone else eyes even if you don't agree with them normally.

I also think you make some good points and I think a re-org is in order. This happens to all large corporations the tricky part is the re-org and removing of the barriers and the transition time to get the groups on the same page. I think it needs to happen. If they pull it off they become significantly more efficient. Externally 3rd party also get more efficient at developing apps that span all platforms. With X86 getting to the point where it makes sense in the mobile sector this model can be achieved. ARM is what screws that up a bit.

When I think about it there is opportunity for something huge like game engines do you can make a scalable OS that crosses all platform levels from the smallest devices to the biggest hardware. Allowing the code base to work on all platforms. Yes they are somewhat there with the Windows NT kernel and x86 is nearly ready for smartphone/tablet area. If you can be ready for the convergence point of it you wind up with a platform that easy to develop for because of the single code base. You can almost put an end to porting applications because the platform transcends all hardware and you eliminate emulation.

Google is running the flip side of that equation starting from mobile and hoping ARM scales up to compete with x86 and for the most part ARM is fast enough for the average user as ARM develops. This is similar to how Microsoft took over the world except there was no mobile so they started in the world of Desktop PC's and moved into servers.

Google is technically in the best position.


RE: Microsoft's reset
By ResStellarum on 7/19/2013 2:40:56 PM , Rating: 2
quote:
I'm just suggesting you guys to take anti-MS ramblings of Swash with a seriously big grain of salt, that is all :) We all here know he has an agenda on this. So think for yourself, do not blindly trust the posts of anti-MS "analists" Swash is usually pushing here.


You mean as opposed to your pro-M$ ramblings? One only has to take a peak at your post history to determine where your loyalties lie, and it's most decidedly in favour of M$ and against all its competitors.

Therefore I suggest the same advice be taken with your own posts too.


RE: Microsoft's reset
By drycrust3 on 7/18/2013 11:49:03 PM , Rating: 2
When I worked for the phone company, they quite regularly did organisational changes, and often it seemed these were related to the introduction of new technology. I wouldn't say they'd do a change with every new product, I don't think they could have kept pace with that, but it did seem that with every new major product there was a change.
I think the idea of "Functional" or "Divisional" organisation is misleading, whether it is one or the other is less important than whether Microsoft is adapting to the new technology so it is keeping up or staying ahead of the competition, which it isn't. That adapting to new technology is the reason why you change organisation, just as you change the way you think about new technology when you buy it.
Sure, it has Windows 8 on sale, but that isn't where Microsoft should be, they should be the one fighting Apple for first place in both the tablet arena and the smartphone arena, and they aren't.
To me, changing organisational structure is almost irrelevant without the reason being to adapt to change in technology.
Another point is when you look at Android phones, every manufacturer tries to put their own interpretation of what the ideal home screen looks like. When you compare those with Microsoft's, you can see a world of difference: Microsoft's doesn't inspire someone to say "I must have that".


RE: Microsoft's reset
By Tony Swash on 7/19/13, Rating: 0
RE: Microsoft's reset
By drycrust3 on 7/20/2013 2:40:50 AM , Rating: 1
quote:
But Jobs had unequalled authority in a battered and almost despairing Apple organisation,

I think this is part of the key to Job's success: he was trying to rescue a dying and demoralised company. What did it matter if some products, with limited longevity, were tossed aside in the drive for long term success?
If another Steve Jobs turned up at Apple today would he be given the same opportunities as did Steve Jobs 1? No, almost certainly not, and that is the same problem facing Ballmer: he is trying to keep a profitable company profitable, he isn't trying to bring Microsoft back from the brink of collapse.


RE: Microsoft's reset
By Tony Swash on 7/20/2013 7:10:25 AM , Rating: 1
quote:
If another Steve Jobs turned up at Apple today would he be given the same opportunities as did Steve Jobs 1? No, almost certainly not, and that is the same problem facing Ballmer: he is trying to keep a profitable company profitable, he isn't trying to bring Microsoft back from the brink of collapse.


I agree. In a way the problem for Microsoft is that it's legacy business is still big and healthy and making lots of profits so the incentive to accept profound corporate change is still not there yet. Maybe Microsoft needs a near death experience and then someone brought in to save the company who has the authority of the last chance. That's still a long way off and may never happen though.

Microsoft has some legacy businesses that are so strong that it may never face an existential crises like Apple did which would mean it never has to embrace profound change and so slides into being a bit like IBM. Big but hardly interesting, and not a driver of the tech world. They are almost there already.


RE: Microsoft's reset
By name99 on 7/19/2013 12:36:28 AM , Rating: 4
The problem is bigger than JUST the reorg issue.

The problem is that MS has a fundamentally broken model of where computing is headed. Forcing the same UI on every computing platform, from phone to tablet to laptop to multi-window desktop is stupid. It solves a nonexistent "problem" at the expense of ruining productivity for everyone. And how do you expand it? Does MS plan to run Metro on smart watches? And smart glasses? And in cars?

Until MS accepts the stupidity of this "vision", nothing they do will matter or improve things.
Yeah, yeah, the internet cheerleaders will tell me I'm wrong, that the basic plan, to have EXACTLY the same UI everywhere is genius, it's just minor details that MS has to tweak. (Unfortunately every such commenter has strongly divergent opinions about just what those tweaks should be.)
Keep up your deluded beliefs if you like but there comes a point at which the excuses descend into parody. There's only so long that you can insist that MS is on the right path (even as Google and Apple, both treading the same very different path, keep succeeding at MS' expense) before reality will break through. Do you really want to be the guy claiming that "the war situation has developed not necessarily to Japan's advantage"?


RE: Microsoft's reset
By Tony Swash on 7/19/13, Rating: 0
RE: Microsoft's reset
By Labotomizer on 7/19/2013 9:00:53 AM , Rating: 2
I'll try to keep my cheerleading to a minimum here.

The fact that you don't see the problem coming doesn't mean it isn't there. The idea that a mobile device, a tablet and a laptop/desktop are all fundamentally different categories is true today. It will not continue to be true. As phones continue to become more powerful, as things like foldable display technology becomes a reality, we will eventually move to a point where your phone IS your computer. In the near term it will be the tablet that takes on that role but long term it will be a single device that you carry with you everywhere that will adapt to the usage scenario. This is what Windows 8 was designed for. Are there things that could/should have been done better? Sure, it's a first try at a whole new paradigm in computing.

The Start Screen/Metro UI is great for touch devices. I think most will agree with me there, even if it's not your preferred interface or device. It works great on Windows Phone, it works great on Surface and the other tablets out there. Where people think it's lacking is on the desktop/laptop. In those situations it really is designed to be the start menu replacement and it contains all the same functionality as the start menu only it takes up the full screen. It's a deal breaker for a lot of people. I don't want to get into if it's good or not because that's not the point I'm trying to make. The point is that Windows 8 is the first OS that is actually suited to changing form factors. It's still rough around the edges and, depending on your personal opinions, a poor approach to the design. But the argument that it's a problem that doesn't need to be solved is a completely illogical one. It is DEFINITELY a problem that has to be solved.

I find it amusing the number of comments that, in a single post, condemn Microsoft for missing the mobile device and tablet era of computing and immediately follow that by condemning them for TRYING to push computing forward in a way that is almost guaranteed for the industry to move towards. So 10 years from now when Apple and Google have this OS that adapts to different situations and presents different interfaces will you say that Microsoft missed the boat again? Or will you look back at the launch of Windows 8 and realize what they were trying to accomplish. At least they are trying something different. You can't have both.

Failure is the first stop on the innovation train. If Windows 8 is a failure, which I think will be judged 5 years from now and not today, then it was an absolutely necessary failure. For all of computing.


RE: Microsoft's reset
By aliasfox on 7/19/2013 10:46:22 AM , Rating: 2
Well, when you say that Apple and Google will have an OS that adapts to different situations, you're missing something - in some respects, Apple is already there. In many ways, iOS is a subset of OSX, built for ARM. However, the x86 vs ARM distinction, as well as keyboard/mouse vs touchscreen distinction, is big enough to stop Apple from throwing iOS into OSX.

I think the fragmentation issue on Windows is something Microsoft has to figure out. Windows Phone is kind of like Windows RT/Metro, but software doesn't work between the two and the capabilities are very different. Windows RT is kind of like Windows 8, but again, the software doesn't work between the two and the capabilities are very different. But they're all Windows.

iOS looks the same and feels the same on an iPhone or an iPad, and they both run the same apps. Vanilla Android looks the same and runs the same on phones and tablets, and they run the same apps. If it can't do the same thing (iOS vs OSX, Android vs Chrome), the devices have to make that distinction clear to consumers.


RE: Microsoft's reset
By Labotomizer on 7/19/2013 12:10:12 PM , Rating: 3
They aren't there. It may be a subset, but the future is having all the functionality on a single device. I suppose if you could run iOS and OS X on your phone you would be there. That's my point.


RE: Microsoft's reset
By aliasfox on 7/22/2013 8:59:39 AM , Rating: 2
You can't run OSX on your phone, but you can essentially run iOS through OSX through the iOS developer kit. It's harder the other way around because of the performance and power requirements with regards to software emulation - I'm betting an i5 can emulate ARM with no performance penalty, but getting a Cortex A9 or even A15 chip to emulate a Core i5 would be futility.

It might be a nice concept if the next gen MacBook Air had dual LCDs in the lid - open it up, and the OSX desktop appears. Close it and use the screen on the outside of the lid, and you get the iOS touch interface.


RE: Microsoft's reset
By Tony Swash on 7/19/2013 2:59:47 PM , Rating: 2
quote:
But the argument that it's a problem that doesn't need to be solved is a completely illogical one. It is DEFINITELY a problem that has to be solved.


Let's take that statement apart a bit because it raises an interesting set of questions.

First of all why is having a separate OS and interface for touch devices and desktop PCs a problem? Currently it looks more like a solution. The reason the tablet market took off was not because Microsoft touted, year after year, tablets running Windows, it took off because Apple brought to the tablet a fully functional OS designed for touch from the bottom up.

The question that puzzles me is what problem for the customer does Windows 8 solve? It seems to have been designed primarily to solve a problem for Microsoft, the problem of how to extend it's Windows franchise to touch screen tablets. I can't see any problem it solves for the buyers of Windows PCs that could have not been better solved by taking the core OS improvements (boot up times etc) and wrapping it in an incrementally improved Windows 7 type interface. How does the metro interface actually improve working on the desktop?

What problem does dropping out of the touch screen environment and into the old desktop environment solve for users of Windows 8 tablets? One might say using Office but why not just ship a version of Office designed specifically for touch screens instead of the current kludge?

I see lots of people saying Windows 8 is great and it has a future and you can really make it work, etc, but does it deserve to exist? Has Windows 8 actually solved real problems for real customers? In what way has the life of desktop users been improved by the move from Windows 7 to Windows 8. In what way has the experience of users of Windows 8 tablets been improved compared to what it would have been like if their tablets were just running a touch only version of Windows Phone OS correctly scaled up to the tablet form factor?

It looks me to that Windows 8 is the answer to question nobody is actually asking.


RE: Microsoft's reset
By retrospooty on 7/19/2013 4:43:58 PM , Rating: 2
"what problem for the customer does Windows 8 solve? It seems to have been designed primarily to solve a problem for Microsoft"

Exactly... MS is definitely having some "not listening/caring what their customers want" issues... The notion that desktop/laptop must use the same touch interface as tablet/phone/touch devices is completely absurd. They are fundamentally different UI's and should be treated as such... At LEAST as an option.

The most irritating thing about it is that it was done on purpose late in the game. The Win8 Dev preview that came out several months prior to the official release had the start menu... They took it out before the official release and pissed off 1/2 their base and it was totally unnecessary.


RE: Microsoft's reset
By Tony Swash on 7/19/2013 3:12:25 PM , Rating: 1
Actually just after I wrote a reply to your comment I came across the latest piece by Ben Thomson who says it much better than I. It's here

http://stratechery.com/2013/services-not-devices/

This a an excerpt:

The truth is that Microsoft is wrapping itself around an axle of it’s own creation. The solution to the secular collapse of the PC market is not to seek to prop up Windows and force an integrated solution that no one is asking for; rather, the goal should be the exact opposite. Maximum effort should be focused on making Office, Server, and all the other products less subservient to Windows and more in line with consumer needs and the reality of computing in 2013.

Devices are vertical, services are horizontal

The trouble for Microsoft in the devices layer is that they only know horizontal domination. When there was nothing but PC’s, the insistence on one experience no matter the hardware worked perfectly. However, a Dell and an HP are much more similar than a tablet and a web page, for example, each of which has its own input method, user expectations, and constraints. A multi-device world demands bespoke experiences, not one size fits all. Microsoft simply doesn’t seem to understand that, and the longer they seek to “horizontalize” devices the greater the write-offs will become.

However, look again at that picture: there remains a horizontal layer – services – and it’s there that Microsoft should focus its energy. For Office and Server specifically:

Documents remain essential and ubiquitous to all of the world outside of Silicon Valley; an independent Office division should be delivering bespoke experiences on every meaningful platform. Office 365 is a great start that would be even better with a version for iPad

A great many apps are simply front-ends for web-based services; an independent Server division should be delivering best-in-class interfaces and tools for app developers on every meaningful platform


RE: Microsoft's reset
By Ramstark on 7/19/2013 1:56:49 PM , Rating: 2
Wow, you seem to have all the knowledge to say that right? "The MS model is broken!" Who says it? The market who continues to scream and whine about it is the one reading this site, as your 4 rating followed by the 0 rating of Tony prove, a biased, tendentious crowd that hate to see things in his "rig" change.

The integration of environment and computing is coming, with that, wearable computers (even if this site HATES on Google glass) are coming, platform integration is here to stay. So, guys, please step aside and receive your friend, the future, send your complains to the usual office, the past.


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