Microsoft Takes $900M Charge on Surface Flop
July 18, 2013 6:40 PM
comment(s) - last by
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. (
) 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
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.
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
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.
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.
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.
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RE: Microsoft's reset
7/19/2013 10:46:22 AM
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
7/19/2013 12:10:12 PM
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
7/22/2013 8:59:39 AM
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.
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