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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 Tony Swash on 7/19/2013 2:59:47 PM , Rating: 2
quote:
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.


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