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Microsoft Results Miss Estimates

Microsoft Results Miss Estimates
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7/18/2013 6:25 PM ET

Software giant Microsoft Corp. (MSFT: Quote) said Thursday after the markets closed that it swung to a fourth quarter profit from a year-ago loss that included a hefty goodwill impairment charge related to the company's Online Services Division.

However, the company's quarterly earnings per share, excluding items, came in below analysts' expectations as did its quarterly revenue.

"While our fourth quarter results were impacted by the decline in the PC market, we continue to see strong demand for our enterprise and cloud offerings, resulting in a record unearned revenue balance this quarter. We also saw increasing consumer demand for services like Office 365, Outlook.com, Skype, and Xbox LIVE," said Amy Hood, who in May succeeded Peter Klein as Microsoft's chief financial officer.

Microsoft shares are currently losing 6.43% in after hours trading after closing the day's regular trading session at $35.44, down 30 cents. The shares trade in a 52-week range of $26.26 to $36.43.

Microsoft's two major divisions make the Windows operating system and Office business software. About 90% of the PCs around the world run on the company's windows operating system.

Microsoft's business division revenue increased 14% year-over year to $7.2 billion in the fourth quarter. Excluding the impact of the recognition of $782 million of revenue previously deferred related to the Office Upgrade Offer and increased sales of Office, the division's revenue grew 2%.

Fourth quarter revenue from the company's Windows division rose 6% to $4.4 billion. Adjusting for the impact of the $540 million revenue deferral in the prior year related to the Windows Upgrade Offer, Windows division revenue fell 6%.

The company's latest operating system - Windows 8 - became generally available on October 26. It is designed to work equally well on touchscreen devices and conventional ones.

Microsoft said higher commercial sales of Windows were largely offset by the impact on revenue of a decline in the PC market.

Earlier this month, industry research firm International Data Corp. said global PC shipments in the second quarter of 2013 fell 11.4% from last year to 75.6 million units.

Another market research first market research firm Gartner, Inc. (IT) also said worldwide PC shipments in the second quarter fell 10.9% from a year earlier to 76.0 million units. Gartner said "This marks the fifth consecutive quarter of declining shipments, which is the longest duration of decline in the PC market's history."

Server and tools division's revenue rose 9% to $5.5 billion in the fourth quarter, mainly driven by product sales and Enterprise Services. In September, Microsoft launched Windows Server 2012.

Fourth quarter revenue from the company's entertainment and devices division increased 8% to $1.9 billion, mainly due to higher Windows Phone revenue, offset in part by lower Xbox 360 platform revenue. Last month, the company said it expects its next generation console, Xbox One, will be available for purchase in the second quarter of fiscal 2014.

Online services division revenue for the quarter grew 9% year-over-year to $804 million.

For the fourth quarter ended June 30, 2013, the world's largest software company reported net income of $4.97 billion or $0.59 per share, compared to a net loss of $492 million or $0.06 per share for the year-ago quarter.

The latest quarter results include a $900 million, or $0.07 per share, charge related to Surface RT inventory adjustments. Surface RT tablet was launched alongside Windows 8 in October but has not sold well. Earlier this week, Microsoft said it was drastically cutting prices of the model to entice buyers.

The year-ago quarter results included a $6.2 billion, or $0.73 per share, goodwill impairment charge related to the company's Online Services Division.

On average, 29 analysts polled by Thomson Reuters expected the company to earn $0.75 per share for the fourth quarter. Analysts' estimates typically exclude special items.

Redmond, Washington-based Microsoft said revenue for the fourth quarter rose 10% to $19.90 billion from $18.06 billion in the same quarter last year. Excluding the prior year deferral of $540 million related to the Windows Upgrade Offer, and the recognition of $782 million in the latest quarter associated with the Office Upgrade Offer, fourth quarter revenue grew 3%. Twenty-eight analysts had a consensus revenue estimate of $20.73 billion for the fourth quarter.

Microsoft revised its fiscal 2014 operating expense guidance downward to a range of $31.3 billion to $31.9 billion from its prior guidance of $31.6 billion to $32.2 billion.

The company stopped making specific profit or revenue forecasts in January 2009, citing market volatility.

Microsoft CEO Steve Ballmer announced last week that it was going for a major company-wide realignment in order to enable faster innovation, efficiency and capability in a fast changing world as "One Microsoft."

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by RTT Staff Writer

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