Microsoft's fourth quarter results show that it had to take a US$ 900 million write down on the stock of tablets it is holding and is unlikely to ever sell. As a result earnings came in well below expectations resulting in a fall in share-price of over 6%.
Surface RT, PCs
Surface RT was not the only problem -- there many others that saw Microsoft struggling to meet market expectations and failing in many areas.
That is not to say that there weren’t good performances in different segments, particularly in the enterprise segment, but the overall impression is of a company that still has to come to terms with the face of new, consumer computing habits that include mobile and cloud computing.
How Microsoft ultimately deals with this remains to be seen, but the recent restructuring announcement and streamlined company of the future is a start.
Even Amy Hood, giving her first earnings announcement since becoming the new Chief Financial Officer wasn’t trying to make excuses. She told analysts after the results were published that Microsoft would just have to do better. A lot better too.
I want to be clear—we know we need to do better, which is why we instituted the reorganization we did last week," she told analysts on the earning conference call.
Microsoft seems to be in a market that it really appears to be struggling to master, even if figures from things like Office 365 or its cloud services indicate that it will get there eventually.
The PC market also had a serious impact on the figures. According to Microsoft’s own estimates yesterday, PC sales to consumers have dropped by as much as 20% over the quarter, while sales of Windows software to PC makers is expected to drop by a percentage point somewhere in the mid-teens.
The writing is on the wall, and it says no matter what, you have to take the devices road. The message hasn’t been missed by Steve Ballmer either:
We are working hard to deliver compelling new devices and high value experiences from Microsoft and our partners in the coming months, including new Windows 8.1 tablets and PCs…Our new products and the strategic realignment we announced last week position us well for long-term success, as we focus our energy and resources on creating a family of devices and services for individuals and businesses that empower people around the globe…” he said.
Even if the Surface RT and PC issues still need to be ironed out, Microsoft is still a financially profitable company. The problem is that it just didn’t come up to Wall Street expectations and that is always going to impact on share price.
Microsoft Q4, Fully Year
Leaving the Surface RT write-down out of the figures, revenues came in at US$ 19.9 billion compared to expectations of US$ 20.1 billion with profits of 66 cents/share compared to the expected 75 cents/share.
This means that revenues were up 10.3% on the same period last year with profits of US$ 5 billion. It is also clear that the enterprise product side is doing quite nicely, while Windows struggles to find its place in the new reality of tablets, a fact that is reflected in the fact that operating income for Windows is US$ 1.1 billion compared to US$ 2.42 billion a year ago.
Its figures for the full year were also healthy. Revenue for the 12 months ending June 30 was US$ 77.8 billion, up 6% on the year, while operating income of US$ 26.8 billion was up 23%, with earnings per share of $2.58, up 29% on the previous year.
Microsoft Figures by Division
Other noteworthy figures include:
- Business Division, which includes its Office applications, revenues grew by 14% for the quarter and by 3% for the full year. However, if you take into account the impact of the Office upgrade offer that falls to 2%. Office 365 now has recurring revenues of US$ 1.5 billion.
- SQL Server and System Center pushed Server and Tools to 9% revenue growth over the quarter and 9% for the entire year.
- Online Services Division revenues grew 9% for the fourth quarter and 12% for the full year, which was driven by an increase in revenue per search and volume.
All this has given rise to a lot of optimism in Microsoft, particularly as more people are starting to sign-up to services that provide annual revenue streams to Microsoft.
We continue to see strong demand for our enterprise products and services, with more and more customers making long-term commitments to the Microsoft platform…The growing adoption of our cloud services, including Office 365, Windows Azure and Dynamics CRM, continues to demonstrate our leadership position in the cloud,” said Kevin Turner, chief operating officer at Microsoft.
Well what else would he say, but the figures do bear at least some of it out, even if his claim to be a cloud leader might not sit well with some.
It’s been a long year for Microsoft as it heads into the new fiscal year. This time however, there is a comprehensive restructuring strategy to be put in place, which the company has said will start having an impact early next year.