infoTECH Feature

July 19, 2013

Microsoft Struggles with End-of-Fiscal-Year Challenges

Microsoft (News - Alert) had to face some negative news this week with its latest earnings reports. The company’s Q4 profit and revenue were significantly lower than analysts had predicted and there appears to be even less demand for personal computers running on the Windows operating system.

In addition, there was a $900 million write-down related to the Surface tablet – some more troubling news for the technology giant.

Not including the Surface write-down, the company’s revenue was $19.9 billion, compared to the $20.7 billion that had been predicted by analysts, news reports said.

The sobering news did not help Microsoft shares, which dropped some 6.3 percent in after-hours trading to $33.22.

The company’s quarterly net income was $4.96 billion, including the Surface RT write-down. Last year, during the same time period, Microsoft saw a net loss of $492 million.

Meanwhile, the company’s chief financial officer, Amy Hood, told the Wall Street Journal, "We know we have to do better, particularly on mobile devices.”

The news also comes a week after Microsoft CEO Steve Ballmer (News - Alert) announced a reorganization – which will increase the focus on tablets and smartphones, as well as services.

Yet, almost all of the company’s business units fell short of expectations, according to Rick Sherlund, an analyst with Nomura Securities.

"It was a whiff across the board," Sherlund told The Journal. "It's the fourth quarter in a row that they've missed their guidance for the major segments of their business."

"It doesn't inspire a lot of confidence," Sherlund added in a statement carried by TMCnet. "You're in the hardware business now, and pretty shortly after entering it, you have a pretty big write down. That's embarrassing." 

Microsoft had started selling the Surface – its first tablet – last year, according to a report carried by TMCnet. It now will be selling for $349 compared to $499. That may help increase the company’s share of the tablet market, which was calculated to be 2 percent in a recent study.

There were 900,000 units of the Surface shipped in the December and March quarters, according to Bloomberg (News - Alert) News.

Another key issue for the company relates to Windows 8, released last year but expected to be updated soon with Windows 8.1. The company faced consumer dissatisfaction over the earlier version.

The news about Microsoft comes as worldwide PC shipments dropped 11 percent in the April-June quarter, according to recent studies.

“Consumer PCs remain pressured,” Sid Parakh, an analyst at McAdams Wright Ragen, told Bloomberg News. “Consumers are buying smartphones and tablets. Microsoft has launched some products in those areas but hasn’t made much headway. They’re late to market, and they’re not competitively priced.”

Hood recognized the changes in consumer preferences when it comes to PCs – adding that some of the company’s products and services remain in demand.

“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 (News - Alert), and Xbox LIVE,” Hood said in a company statement. “While we have work ahead of us, we are making the focused investments needed to deliver on long-term growth opportunities like cloud services.”

“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,” Ballmer added in the statement. “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 at home, at work and on the go, for the activities they value the most.”

Looking ahead, Microsoft also announced this week that it is revising its operating expense guidance down to $31.3 billion from $31.9 billion for the full fiscal-year ending June 30, 2014.




Edited by Ryan Sartor
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