Microsoft suffers worst fiscal year ever while Apple rises

[AppleInsider]

Once accustomed to ever-rising profits, Microsoft has been dealt two blows with both its second quarter of losses in a row and its first-ever annual decline, all at the same time as Apple has had its best non-holiday quarter yet.

The Redmond, Washington company told investors on Thursday that its spring quarter sales shrank 17 percent compared to a year ago, down to $13.1 billion, and pinned most of the shortfall on a perilous drop in sales for its Client division, which produces the Windows operating system and forms the backbone of its business. Revenue for that group fell an unprecedented 28.7 percent to just over $3.1 billion and was hit directly by slower sales of regular and server PCs; Microsoft estimates these have fallen 5 to 7 percent compared to where they were a year ago.

Other divisions also took a hit, including a 25 percent blow to the Entertainment and Devices group that handles both the Xbox and Zune as well as in Microsoft's server software, online and business segments.

Unsurprisingly, Microsoft chief operating officer Kevin Turner associated the decline with "challenges" in the current economic climate. However, the result caps off a particularly disastrous year for the company. Just last quarter, the software's developer revenue had declined 6 percent after years of steady gains and management felt forced to cut 5,000 jobs. Either of these were previously extremely rare occurrences, but the second negative quarter was enough to tip Microsoft into the red for its complete fiscal year ended in June -- a fate unheard of in the 23 years since the company first went public and began reporting its results.

Although eager to show that its performance might turn around soon, pointing out $750 million in cost-cutting and the fall releases of Windows 7 and Windows Server 2008 R2, Microsoft's results stand in stark contrast to Apple's. The Mac maker on Tuesday reported its best non-holiday quarter in history after posting record revenue and said its profits alone had grown 15 percent as two of the three pillars of its business performed above expectations. Moreover, Microsoft's willingness to provide an overview of the PC industry has inadvertently confirmed Apple bucking a wider downward trend. Mac sales increased 4 percent this quarter versus spring 2008 and may have Apple gaining almost as much percentage-wise as the predominantly Windows-led market will have lost.

Having to recognize a second straight quarter of declining fortunes additionally underscores an increasing sense of urgency at Microsoft, whose reputation has been hurt by real and imagined flaws in Windows Vista. In the past several months, it has resorted to price-oriented ads that attack supposedly inflated Mac prices but de-emphasizing Windows itself. The ads themselves were at least somewhat neutered by a round of price cuts and system upgrades to MacBook Pros that rendered many of the arguments invalid or muted.

And while COO Turner has tried to claim that the ads were effective by noting Apple's request they be pulled, substantially reduced Windows sales and the ensuing fall in Microsoft's bottom line have together revealed the TV spots doing little, if anything, to prevent customers from buying Macs in greater numbers.

[MacTripper]

Microsoft suffers worst fiscal year ever while Apple rises

Good, maybe the stock will get so cheap Apple and/or Google can buy them out and end the suffering of billions.

If Apple put their mind to it, they could wipe Microsoft off the face of the earth.

Guess Steve just can't do it to old Bill.


Maybe Eric can.

[echosonic]

AAAAAHahahahahahahahahahahahahahahahahahahahayha.. ..WOOOOOOOOhoohoohoohoohoohoohoohoohohooohahahahah ahahahahahahahahahahahahahaha

[Quadra 610]

Should read "Microsoft's worst year yet." There's more to come if MS continues on this course.

Those Laptop Hunter ads were complete FAILURES. Anyone with a modicum of taste would have immediately recognized that MS was heading right for the low end. Did they even know it?? Do they have any idea where their decisions will ultimately lead? Part of the problem is their targeting of Apple. Bad move. The most unpredictable adversary, dedicated to a very clear, very focused mission statement. And it has nothing to do with the bottom end.

Who didn't see this coming?

And really, this is what has Microsoft acting so defensive: Windows still has overwhelming unit sale market share, but it is now almost entirely at the low end of the market. Bargain bin status. Not a good image at all.

This drop comes as no surprise. Sure, blame it on the recession . . . when Apple is thriving in hard times, on Mac sales specifically. MS of course, will never admit that the problem isn't the recession: it's the culture at MS. It's the attitude when it comes to what happens from the time a user picks up a device to the time the action is executed: user experience. But . . . They. Don't. Give. A. Damn. Never have.

And all of this under Ballmer's watch.

[dreyfus2]

Originally Posted by AppleInsider

And while COO Turner has tried to claim that the ads were effective by noting Apple's request they be pulled, substantially reduced Windows sales and the ensuing fall in Microsoft's bottom line have together revealed the TV spots doing little, if anything, to prevent customers from buying Macs in greater numbers.

Let's see. Before MS started this completely unscripted nonsense, Apple sold around 60% of computers costing more than 1k, after the adds they cover 91%... So, I assume you wrote they were doing "little, if anything" out of compassion? Truth is, they made it worse for PC manufacturers and MS. They are compelled to be cheap now. Great job and thanks for all the fish :-)

[NasserAE]

Good. Hopefully this will put pressure on MS to go back to their original business plan and focus on improving their software instead of sticking their noses in others markets.

[alwaysapple]

Originally Posted by Quadra 610

Should read "Microsoft's worst year yet." There's more to come if MS continues on this course.

Those Laptop Hunter ads were complete FAILURES. Anyone with a modicum of taste would have immediately recognized that MS was heading right for the low end. Did they even know it?? Do they have any idea where their decisions will ultimately lead? Part of the problem is their targeting of Apple. Bad move. The most unpredictable adversary, dedicated to a very clear, very focused mission statement. And it has nothing to do with the bottom end.

Who didn't see this coming?

And really, this is what has Microsoft acting so defensive: Windows still has overwhelming unit sale market share, but it is now almost entirely at the low end of the market. Bargain bin status. Not a good image at all.

This drop comes as no surprise. Sure, blame it on the recession . . . when Apple is thriving in hard times, on Mac sales specifically. MS of course, will never admit that the problem isn't the recession: it's the culture at MS. It's the attitude when it comes to what happens from the time a user picks up a device to the time the action is executed: user experience. But . . . They. Don't. Give. A. Damn. Never have.

And all of this under Ballmer's watch.

Well said!

[Wil Maneker]

Originally Posted by AppleInsider

...Microsoft into the red for its complete fiscal year ended in June...

Adding up Microsoft's Net Income for the previous 3 quarters, plus this just announced quarter totals to around $14 billion.

Declining, but positive, profits are completely different then a net loss (or being "in the red")

Or am I missing something...

[malax]

I'm afraid that MSFT didn't have it's worst fiscal year ever nor did it "end the year in the red." Those statements would imply their least profitable year and, in fact, a loss for the year. The correct statement would be like this from the WSJ:

"The quarter capped the software giant's first full year of declining sales since it went public more than two decades ago."

"In the red" implies losses, not shrinking profits. There is a big difference. MSFT still made more in profits than Apple this quarter, and this year, even if they didn't do as well as they did last year.

So yeah it's rotten news for MSFT, but most companies would LOVE to be in the position that they're in.

[quinney]

Originally Posted by AppleInsider

And while COO Turner has tried to claim that the ads were effective by noting Apple's request they be pulled, substantially reduced Windows sales and the ensuing fall in Microsoft's bottom line have together revealed the TV spots doing little, if anything, to prevent customers from buying Macs in greater numbers.

Apparently "Cartwheel" Turner's gymnastic display was premature.

[Expat]

I think we also have to look at what's on the horizon. We all know from an Apple fan standpoint, no one buys when you know a new product is due. Windows 7 might move more computers after it is out. Sure, Apple has a new OS coming out the same time, but I think they finally priced it right at the $29 mark. I personally wouldn't have a problem buying a new Mac and then shelling out $29 in a few months for an OS update - but shelling out over $200? That's stupid.

Who knows what will happen in the future - all I head about is Zune HD IN THE FALL, Win 7 IN THE FALL, Natal IN 2010, MS retail stores in 2010. Really, its all in the future. Sure, this might be good, but what happens if things fail? Bad reviews of the Zune HD and the whole line might flop. That, or if Windows 7 has a bad first month where there are tons of compatibility issues, viruses and bugs it could sink the OS with Vista-like results.

In other words, right now, both companies are in slow periods - Apple's getting set for a new OS, new iPods and maybe a tablet. Microsoft is getting ready for a new Zune and a new OS. The thing is Apple is thriving, and MS isn't. We'll see. This fall is either going to see an MS rebound, or a sharp turn downwards, but regardless, they have placed all their bets in what's coming up in 3 months, so fall will likely shape the company for a few years.

[dreyfus2]

Originally Posted by Wil Maneker

Declining, but positive, profits are completely different then a net loss (or being "in the red")
Or am I missing something...

Well, a "net loss" is certainly different, but a negative value (or one in braces) in the year-over-year comparison column is also "in the red".

[Wil Maneker]

Originally Posted by malax

I'm afraid that MSFT didn't have it's worst fiscal year ever nor did it "end the year in the red." Those statements would imply their least profitable year and, in fact, a loss for the year. The correct statement would be like this from the WSJ:

"The quarter capped the software giant's first full year of declining sales since it went public more than two decades ago."

"In the red" implies losses, not shrinking profits. There is a big difference. MSFT still made more in profits than Apple this quarter, and this year, even if they didn't do as well as they did last year.

The article needs to be rewritten.

[clexman]

Microsoft still made tons of money and profits. It is not even close to their worst year ever. They just made less this year than last year for the first time.

How many times has Apple done that? Lots.

Apple is still not even close to making more money than MS.

[charlituna]

Originally Posted by AppleInsider

And while COO Turner has tried to claim that the ads were effective by noting Apple's request they be pulled,

due to inaccurate information, not because Apple is scared of lost sales (as some articles tried to imply)

Originally Posted by MacTripper

.

If Apple put their mind to it, they could wipe Microsoft off the face of the earth.

Guess Steve just can't do it to old Bill.

no Steve won't do it. but not cause of Bill. He won't do it because to destroy Microsoft puts Apple at risk of gaining the market strength and when that happens, Apple loses the sanction to tie hardware and software. it would be abusive at that point and violate anti-trust. Apple would be forced to reopen the whole cloning game and unlock OSX to work on all configurations. Something Apple does NOT want.

Originally Posted by NasserAE

Good. Hopefully this will put pressure on MS to go back to their original business plan and focus on improving their software instead of sticking their noses in others markets.

Originally Posted by Expat

I think we also have to look at what's on the horizon. We all know from an Apple fan standpoint, no one buys when you know a new product is due. Windows 7 might move more computers after it is out.

agreed on both points. Microsoft needs to get an improved and stellar product out on the market. and yes they have positioned Windows 7 to be that product. so we shall see what happens when that software debuts

[wobegon]

Anyone else smell that? Something burning? *scrunches nose*

I was actually surprised by the size of the drop in revenue of their Xbox/Zune devision. 25%? Yowza.

[aaarrrgggh]

What a horrible article!

MSFT made $3B profits or $0.33 per share. Which is more than AAPL made. Less than Analysts had hoped by $0.02 per share.

I'll stick by my $22 price target to by MSFT shares, although I am holding steady on my AAPL shares and options...

[fraklinc]

Originally Posted by clexman

Microsoft still made tons of money and profits. It is not even close to their worst year ever. They just made less this year than last year for the first time.

How many times has Apple done that? Lots.

Apple is still not even close to making more money than MS.

It really don't matter how much money M$ makes if they're flushing it down the toilet.
Apple is sitting on piles and piles of cash while M$ keep burning cash. To me Microsoft is not even near as healthy as Apple is.

[macinthe408]

MS's R&D budget is bigger than all of Apple combined. (What comes out of that R&D shop, other than the Word grammar checker, is fodder for another thread.)

[al_bundy]

I've been using windows 7 since the beta and it's ok. Nothing more than an incremental upgrade. Nothing like when windows 95, windows 2000 or windows xp came out. Windows vista and 7 have some nice features to save money but nothing revolutionary

Microsoft's problem is that apple is cleaning up in the mobile space and microsoft is clinging to their oem partner model who don't care what os they use I'm their products or quality.

On the server side a lot of products are too new and companies will probably upgrade next version

[thanx_al]

Winders 7 better be a huge hit. I remember before Vista was launched, all the MS fan boyz claimed it would be the second coming of the computer. If people aren't doing cartwheels in the streets it will make MS irrelevant. If it is even close to what happened with Vista, they're toast.

P.S. Title of the post should have been "nanni-nanni-boo-boo-stick your head in poo-poo". Not that I'm complaining. Been burned so many time by Microshit I truly hope they go under. But they are still turning a profit. We'll see how long that lasts as cheap vs. saturated becomes a real issue for profit margins. Myself, for the first time since 3.1, I won't be loading the new MSOS. Don't really care anymore.

[natsfan7]

Originally Posted by Expat

if Windows 7 has a bad first month where there are tons of compatibility issues, viruses and bugs it could sink the OS with Vista-like

Well considering the overall positive buzz that is surrounding windows 7, and the way it is out pacing Vista pre-orders (http://www.techcrunch.com/2009/07/22...manufacturing/), I think Windows 7 will do all right.....but you never know!!! But honestly, Windows 7 is much better than Vista, and assuming (as you said in your post) they've learned their lesson from Vista's compatibility issues, Windows 7 should be a huge success.

[JeffDM]

Originally Posted by dreyfus2

Well, a "net loss" is certainly different, but a negative value (or one in braces) in the year-over-year comparison column is also "in the red".

I don't know, maybe, but I've never seen that phrase used that way before.

[dreyfus2]

Originally Posted by natsfan7

Well considering the overall positive buzz that is surrounding windows 7, and the way it is out pacing Vista pre-orders (http://www.techcrunch.com/2009/07/22...manufacturing/), I think Windows 7 will do all right.....

I also think that 7 will do alright, just the pre-order argument is weak, as there were no respectable discounts for pre-ordering Vista. 7 is already priced into the stock and the numbers would have to be enormous to make a difference. And I do not see that.

The story here is not who makes more money. A company making almost no hardware and having a de facto monopoly will always outperform the competition. It is on how many ends MS is loosing ground. Pretty much none of their newer businesses is worth a dime and the "old business" remains the life insurance subsidizing everything else. This is no pretty long-term outlook for them.

[CurtisEMayle]

Originally Posted by Expat

no one buys when you know a new product is due.

Since the early 80's, as I recall, this has been the marketing pattern for Microsoft more than any other software vendor ... pre-announce (sometimes years early), pre-hype, hope to stall purchases of competitors products and cripple them. Most other vendors remain somewhat mute when prodded so that current inventory is depleted and they're not forced to "eat crow" when features/performance doesn't materialize in the final release.

When I read about Windows 7, nothing seems to have changed...

[Virgil-TB2]

Originally Posted by AppleInsider

Once accustomed to ever-rising profits, Microsoft has been dealt two blows with both its second quarter of losses in a row and its first-ever annual decline, all at the same time as Apple has had its best non-holiday quarter yet....

Do I have to say it?

[ahmlco]

Originally Posted by macinthe408

MS's R&D budget is bigger than all of Apple combined. (What comes out of that R&D shop, other than the Word grammar checker, is fodder for another thread.)

Does Microsoft Bob mean anything to you?

[Virgil-TB2]

Originally Posted by clexman

Microsoft still made tons of money and profits. It is not even close to their worst year ever. They just made less this year than last year for the first time.

This is true.

Originally Posted by clexman

How many times has Apple done that? Lots.

This is misleading and almost a lie. It's been a long, long time since Apple posted less profits year over year than the previous year. As with most things in business it's the trends that count. Apple has been on a spectacular upward trend for ages, Microsoft is switching from a steady but very slow upward trend to a downward trend. That's why it's big news.

Originally Posted by clexman

Apple is still not even close to making more money than MS.

This is a real exaggeration. Apple is actually more profitable on the same amount of sales or expenditures by far, (and has been for a while). It's actually pretty close to making more money than Microsoft.

[Dr Millmoss]

Originally Posted by aaarrrgggh

What a horrible article!

MSFT made $3B profits or $0.33 per share. Which is more than AAPL made. Less than Analysts had hoped by $0.02 per share.

A very misleading statement. It's not about volume, it's about growth.

[Tofino]

Originally Posted by natsfan7

Well considering the overall positive buzz that is surrounding windows 7, and the way it is out pacing Vista pre-orders (http://www.techcrunch.com/2009/07/22...manufacturing/), I think Windows 7 will do all right.....but you never know!!! But honestly, Windows 7 is much better than Vista, and assuming (as you said in your post) they've learned their lesson from Vista's compatibility issues, Windows 7 should be a huge success.

i'm not sure that a techrunch link is going to carry much weight around here... i also think the high pre-sale numbers have something to do with the $50 (?) price tag. that's gotta be a low for microsoft and the fact that they're giving it away for use until next year smacks of desperation.

the consensus on windows 7 seems to be that it's good, but also that it's what vista should have been. considering the ongoing delays in getting the bugs out of vista, including the rebranding to windows 7, i think microsoft has work to do to make it a 'huge success'.

of course new computers will have it pre-installed, and since microsoft set the bar so low with the vista debacle, 'success' is almost guaranteed. now they have to convince the millions of business users to upgrade. i think that's the real challenge.

oh - and ballmer need to get fired.

[cameron (mississauga)]

I'm quite disappointed with the mistakes in this article. Others have pointed them out: ex. "in the red".

I have relied on AppleInsider in the past, and love this website.

I hope the quality control on other articles is higher than on this one.

Cheers.

[TBell]

It will likely not be a huge success because in a recession businesses do not like to buy new stuff and they will be hesitant to switch to an OS before it is deemed stable in the general market.

Originally Posted by natsfan7

Well considering the overall positive buzz that is surrounding windows 7, and the way it is out pacing Vista pre-orders (http://www.techcrunch.com/2009/07/22...manufacturing/), I think Windows 7 will do all right.....but you never know!!! But honestly, Windows 7 is much better than Vista, and assuming (as you said in your post) they've learned their lesson from Vista's compatibility issues, Windows 7 should be a huge success.

[Quadra 610]

Originally Posted by macinthe408

MS's R&D budget is bigger than all of Apple combined. (What comes out of that R&D shop, other than the Word grammar checker, is fodder for another thread.)

With the crap they've been rolling out since 2001, you coulda fooled me!!

MS' concept of R&D begins and ends with the cash register. Or a photocopier.

[Quadra 610]

If nothing else, trends are trends. And MS has been in a steady downward slide for years now.

[piot]

Originally Posted by cameron (mississauga)

I'm quite disappointed with the mistakes in this article. Others have pointed them out: ex. "in the red".

Care to point out the 'other' mistakes ... or will this be your last post?

[aaarrrgggh]

Originally Posted by Dr Millmoss

A very misleading statement. It's not about volume, it's about growth.

For MSFT as a stock, it actually isn't about growth. Their P/E is 14, and they actually have a dividend yield. Their primary driver is increasing bottom line rather than increasing top line like a "traditional" technology company. Long-term, I don't think they are a great investment, but in the next 6 months it might not be bad...

[Quadra 610]

Originally Posted by piot

Care to point out the 'other' mistakes?

There are none. The numbers are what they are. And they're quite disturbing.

[gwlongsine]

Originally Posted by macinthe408

MS's R&D budget is bigger than all of Apple combined. (What comes out of that R&D shop, other than the Word grammar checker, is fodder for another thread.)

Microsoft licensed a grammar checking technology called
CorrecText
http://en.wikipedia.org/wiki/Grammar_checker.

It didn't originally spring from internal Microsoft R&D, although they have probably improved on it, since.

[JeffDM]

Originally Posted by aaarrrgggh

What a horrible article!

MSFT made $3B profits or $0.33 per share. Which is more than AAPL made.

I would hope that MS made more than Apple, but that's only three times Apple's net profits. After all, their system software is on more than 10x maybe 20x as many computers!

Less than Analysts had hoped by $0.02 per share.

Microsoft's or Apple's? Apple netted $1.19 a share, so if they fall short the consensus by a couple pennies, it's not bad.

[Ronbo]

Originally Posted by malax

I'm afraid that MSFT didn't have it's worst fiscal year ever nor did it "end the year in the red." Those statements would imply their least profitable year and, in fact, a loss for the year. The correct statement would be like this from the WSJ:

"The quarter capped the software giant's first full year of declining sales since it went public more than two decades ago."

"In the red" implies losses, not shrinking profits. There is a big difference. MSFT still made more in profits than Apple this quarter, and this year, even if they didn't do as well as they did last year.

So yeah it's rotten news for MSFT, but most companies would LOVE to be in the position that they're in.

Yeah, that's sort of what I've been thinking. Personally, I really dislike the company. I think they've done far more harm than good. But I think it's tempting to hear some disappointing financials and forget the unbelievable money pumps they have constructed. Those can fuel LOTS of mistakes on their part.

Apple's fought like a champ, and they continue to make gains. But they have to scrabble for every tenth of a percent, it seems. And it's not like the entire core of Windows users is up for grabs.

What's the percentage of current Windows users who simply won't ever look beyond their OS? I suspect it's a substantial majority. Microsoft will find a way to monetize them, and keep them in the fold.