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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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
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

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.

"I'm an Internet expert too. It's all right to wire the industrial zone only, but there are many problems if other regions of the North are wired." -- North Korean Supreme Commander Kim Jong-il

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