Print 79 comment(s) - last by TEAMSWITCHER.. on Jul 23 at 10:26 AM

  (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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By drlumen on 7/18/2013 7:54:32 PM , Rating: 2
Wow. I am gobsmacked. ~$10B spent on bing? And that is they best they could do and still have so little to show for it? Wow. Just, wow!

Have you ever seen the back of a 10 billion dollar bill? Have you ever seen the back of a 10 billion dollar bill... on bing?!

RE: Bing
By datdamonfoo on 7/19/2013 10:24:22 AM , Rating: 2
They actually control 30% of all searches (Yahoo is powered by Bing in the U.S.). So that's pretty damn good.

RE: Bing
By Erudite on 7/19/2013 1:07:41 PM , Rating: 2
Why do they use the word control? If I controlled 30% of my vehicle while driving down the road, that would be bad, not good. It seems like "control" should only be used on the company with the largest share of search, presumably Google.

Just curious.

RE: Bing
By datdamonfoo on 7/19/2013 2:48:16 PM , Rating: 2

RE: Bing
By drlumen on 7/19/2013 1:32:18 PM , Rating: 2
Yahoo is cancelling their deal for bing so that will be going away. IMO, 17% is not that great especially given the money they dropped to get that. For context, Detroit is going bankrupt to the tune of $380 million. But MS is burning $10B to try to gain a dominant position only to lose even more money. They gotta try to put google out of business though huh?

It doesn't matter to me if MS wants to burn money. I am just amazed it cost that much to get so little. IMO, bing's continued failure appears to be more a matter of pride rather than of any sound fiscal decision.

RE: Bing
By ResStellarum on 7/19/2013 1:52:36 PM , Rating: 3
They actually control 30% of all searches

No they don't. Bing's marketshare worldwide is minuscule. And even if we just concentrate on the US, its marketshare is only 30% if you count all the bought traffic. Yes that's right, Bing buys its traffic, unlike Google, whose website people actually visit. Most of the searches through Bing are redirected from other sites like Yahoo, Facebook, and many many others.

I'm no particular fan of Google (I use ixquick myself), but the deluge of comments from M$ apologists on this site forces me to intercede.

RE: Bing
By datdamonfoo on 7/19/2013 2:47:34 PM , Rating: 2
You realize that the article and the source article only talk about the US, right? Your comment does not disprove mine at all.

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