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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: 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.


"Intel is investing heavily (think gazillions of dollars and bazillions of engineering man hours) in resources to create an Intel host controllers spec in order to speed time to market of the USB 3.0 technology." -- Intel blogger Nick Knupffer














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