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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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RE: At least MS is trying new things
By Labotomizer on 7/19/2013 10:05:42 AM , Rating: 2
I think there are legitimate concerns about execution. If I were Balmer I wouldn't stand on an aircraft carrier with a victory banner at this point.

But I think it's the right direction. Better to get rev 1 out of the way now before the hardware catches up and everyone does it. I hope the reorg enables them to do it very well.


RE: At least MS is trying new things
By Mitch101 on 7/19/2013 11:15:43 AM , Rating: 3
Every OS needs that must have that KILLER APP otherwise there is no need to upgrade or use it. As much as I love improvements Windows 8 has over Windows 7 the killer app doesn't exist. Vista kind of ruined that. Vista was a memory hog using twice as much memory as needed when Windows 7 came along that same machine that was specd around Vista became a killer running Windows 7. Windows 8 improves upon Windows 7 depending on who you ask but there isn't that killer app for Windows 8 that will drive people to it. I will admit there are people put off by the interface and many more are unaware it can be changed but unless it comes with a PC most people wont have a need or desire to upgrade to Windows 8 because they don't see the benefit.


RE: At least MS is trying new things
By 91TTZ on 7/20/2013 12:40:11 AM , Rating: 2
The parts of Windows 8 that people actually like are the parts that are carryovers from Windows 7. Everyone I know completely ignores the Windows store and the full screen "apps". They use the desktop much like they did with Windows 7.

Once you install Start 8 Windows 8 becomes usable.


“And I don't know why [Apple is] acting like it’s superior. I don't even get it. What are they trying to say?” -- Bill Gates on the Mac ads














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