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: At least MS is trying new things
By Da W on 7/19/2013 11:26:36 AM , Rating: 5
Microsoft is doing bad, Intel is doing bad, Apple is doing bad, Google just missed profit target BAD, Samsung is starting to do bad, Qualcomm has peaked, AMD is doing bad but that's nothing new, Nintendo is doing bad, HTC is doing bad, facebook is doing bad... start to see a trend?

This goes BEYONDthe "I hate windows 8" pissing contest. Technology is becoming a commodity, selling as cheap as a bag of sugar traded on the Chicago mercantile exchange. People can buy a 150$ device that can do prettymuch what they need.

This is the age of multiplatforms. Content creators are the new kings, not platform owners. The trick is, try to find the next big app\ cloud service before everyone else...

On that topic, I think the company that could do the best if it let go of its old platform strategy and start selling its content on every platform is Nintendo.

RE: At least MS is trying new things
By Mitch101 on 7/19/2013 11:44:54 AM , Rating: 5
Did bad or didn't meet helium inflated investors speculation?

Windows - $4.411 billion revenue with $1.09 billion profit
Online Services - $800 million revenue with $372 million loss
Servers and Tools - $5.502 billion revenue with $2.33 billion profit
Entertainment and Devices - $1.915 billion revenue with $110 million loss
Business Division - $7.231 billion revenue with $4.87 billion profit

RE: At least MS is trying new things
By FITCamaro on 7/19/2013 11:55:15 AM , Rating: 3
Seriously. If you only make $1 billion instead of $1.2 billion, somehow you're doing badly these days.

By Motoman on 7/19/2013 1:21:56 PM , Rating: 2
We all know it's not about the amount you made. It's about whether or not you met your own forecasts, and/or the expectations of the analysts.

If you said you were going to make $1.2B and only made $1.0B, that doesn't mean you're doing "badly" - it means you didn't do what you said you were going to do.

Likewise, if the analysts look at your business and take into account information you've provided and come to a consensus that you "should" make $1.2B, but only make $1.0B, then it's not that you did "badly" - it's that you didn't live up to market expectations.

RE: At least MS is trying new things
By 91TTZ on 7/20/2013 12:45:21 AM , Rating: 3
I think the point that they're missing is that Microsoft spent a huge amount of money on these new mobile initiatives and they all flopped. Windows 8 is a flop, Surface is a flop, the Windows store is a flop, and the Xbox One already has a bad reputation.

The money Microsoft is making is with their older product lines. Windows 7 is still selling fine, their server OSes are selling fine, and DVD versions of Microsoft Office is selling fine.

RE: At least MS is trying new things
By zephyrprime on 7/22/2013 10:27:38 AM , Rating: 2
Wrong. This is the age of the end of the IT boom. With processors no longer doubling in power every 18 months, the computer technology revolution is ending.

By karimtemple on 7/22/2013 2:22:10 PM , Rating: 4
ROFL, wow, a little early on that obituary there. The "computer technology revolution" won't be over until computer stop being stupid, which is a long way yet lol.

There are great strides in utility and usability that we have left to go, e.g. non-invasive BCI, artificial intelligence, and spatial/visual processing.

The revolution will be over when your computer helps you write the code you're thinking about and can quickly and reliably augment the reality seen by your eyewear. We're about 60 to 80 years away.

"What would I do? I'd shut it down and give the money back to the shareholders." -- Michael Dell, after being asked what to do with Apple Computer in 1997

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