Microsoft posts first quarterly loss in company history

Posted:
in General Discussion edited January 2014
Despite beating Wall Street expectations for the second calendar quarter of 2012, Microsoft on Thursday reported its first-ever quarterly loss since the software giant went public in 1986.

Microsoft's fiscal fourth-quarter contraction was in large part thanks to a huge multi-billion dollar write-down for its online services division compounded by deferred revenue related to the company's Windows 8 platform, reports The Wall Street Journal.

The Redmond, Wash., company posted a $492 million loss for the June quarter, or six cents per share. The poor performance is contrasted to the year ago period when Microsoft recorded a profit of $5.87 billion, or 69 cents per share.

Earnings were hit hard by a $6.19 billion write-down related to the company's acquisition of online ad agency aQuantive Inc. which was purchased for $6.3 billion in 2007. Compounding the situation was $540 million of deferred revenue earmarked for Windows 8 upgrade promotions. Microsoft is looking to keep Windows 7 sales going through October by offering buyers of select versions discounted upgrades to Windows 8 until the end of January 2013.

Not counting the write-down of its online services division and the deferred revenue connected to the Windows 8 promotion, Microsoft's earnings were actually in the black at 73 cents a share.

Windows 8
Microsoft took a hefty $540 million hit in deferred revenue for Windows 8 promotions.
Source: Microsoft


Overall revenue was up four percent at $18.06 billion for the quarter despite a 60 percent increase in operating costs. The most recent estimates from a poll conducted by Thomson Reuters pegged earnings at $18.13 billion or 62 cents a share.

Breaking down earnings by division, Microsoft's Windows and Windows Live posted a 13 percent decrease in revenue and an 18 percent drop in profits, once again owing to the deferred revenue.

Helping buoy earnings was Microsoft's entertainment and devices division, which saw a significant boost in sales with 20 percent jump year-over-year while online services revenue rose 8.1 percent. Server products, including enterprise network and private cloud computing systems, posted revenue gains of 13% on boosted profit of 24 percent.

Rounding out the revenue winners was the business division which includes Microsoft Office products with a 7.1 percent jump in sales leading to a 9 percent increase in profits.

Microsoft is banking on its "PC+" strategy, described as an ecosystem of devices running a one-size-fits-all operating system in Windows 8, to carry the company as competition heats up in the mobile space. Earlier in July, Microsoft claimed that Apple's "post-PC" era view of devices was wrong, claiming that the iPhone maker's notion to keep mobile and desktop operating systems separate was outdated. Instead, COO Kevin Turner said the future is a convergence of mobile, laptop and desktop devices under one OS, alluding to the presumed capabilities of Windows 8.

Surface 1
Microsoft is looking to kick-off the "PC+" era with its Surface tablet. | Source: Microsoft


For its part Apple still believes in making devices targeted to specific tasks. During the company's most recent quarterly earnings conference call in April, CEO Tim Cook said, "anything can be forced to converge, but the problem is that the products are about tradeoffs. You begin to make tradeoffs to the point where what you have left at the end of the day doesn't please anyone." He went on to quip, " "you can converge a toaster and a refrigerator, but you know, those things are probably not going to be pleasing to the user."

As part of the PC+ initiative, Microsoft introduced its first self-branded tablet called Surface, with the ARM-based version of the device expected to be released alongside Windows 8 which was recently announced to hit shelves on October 26. Although PC+ calls for a completely defragmented ecosystem it seems Microsoft will be breaking that rule out of the gate with Surface for Windows RT, a tablet running a stripped-down version of Windows 8. A more full-featured Intel-based version dubbed Surface for Windows 8 Pro will be released later this year.

While the Redmond firm once had somewhat of a presence in smartphone market during the nascent pre-iPhone stage, Apple's iOS and Google's Android have made the sector a two horse race. Windows 8, along with Windows RT and Windows Phone, represents an opportunity to gain some lost ground in the lucrative portables arena though it remains to be seen whether the new OS will be enough gain substantial marketshare.

As of this writing Microsoft shares were up $0.65 or 2.14 percent in after market trading.
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Comments

  • Reply 1 of 156
    quadra 610quadra 610 Posts: 6,757member


    Don't worry. Many more are to follow. 

  • Reply 2 of 156
    hellacoolhellacool Posts: 759member
    quadra 610 wrote: »
    Don't worry. Many more are to follow. 

    I am sure if they get desperate, they can use all that cross licensing they acquired when the bailed Apple so many years ago.
  • Reply 3 of 156
    womble2k2womble2k2 Posts: 118member
    According to Ballmer, this is just a rounding error!!
  • Reply 4 of 156
    hmmhmm Posts: 3,405member


    They wrote off a lot of assets against a very high gain in revenues. It's not clear whether they had to be written off against the current quarter or if they're just trying to minimize tax liability.

     

  • Reply 5 of 156
    anantksundaramanantksundaram Posts: 20,403member
    quadra 610 wrote: »
    Don't worry. Many more are to follow. 

    Agreed. They'll blame it on accounting this-and-that, but the bleeding has officially started. Windows 8 will be the floodgate.

    Amazon will follow in a couple of years.
  • Reply 6 of 156

    Quote:

    Originally Posted by anantksundaram View Post





    Agreed. They'll blame it on accounting this-and-that, but the bleeding has officially started. Windows 8 will be the floodgate.

    Amazon will follow in a couple of years.


    I agree also....MS is now in the business of going out of business! Just like RIM, Yahoo, Nokia, and Dell! Crunch!

  • Reply 7 of 156
    shaun, ukshaun, uk Posts: 1,050member


    It's a shame Apple opted to move away from the enterprise market because Microsoft is there for the taking. Most of their profits come from areas were they still have a dominant market position or virtual monopoly - Windows, Exchange and Office. 

  • Reply 8 of 156


    $492 Million Dollar loss in this quarter for MSFT and the earnings estimate for Apple in this 3rd Quarter is for a profit of 9.71 billion.  Apple could beat the estimate by more than 10%.  Apple's 3rd quarter profit to exceed 20 times Microsoft's near half billion dollar loss this quarter.

  • Reply 9 of 156
    jragostajragosta Posts: 10,473member
    hmm wrote: »
    They wrote off a lot of assets against a very high gain in revenues. It's not clear whether they had to be written off against the current quarter or if they're just trying to minimize tax liability.
     

    "a very high gain in revenues"???? Four percent is a very high gain in revenues these days?

    They would crucify the entire management team at Apple if they only produced a 4 % gain in revenues.

    Of course, you have to ask about their strategic planning. They bought a company for $6.3 B and had to write off $6.2 B of that 5 years later. Didn't they make ANY due diligence effort?
  • Reply 10 of 156
    anantksundaramanantksundaram Posts: 20,403member
    hmm wrote: »
    They wrote off a lot of assets against a very high gain in revenues. It's not clear whether they had to be written off against the current quarter or if they're just trying to minimize tax liability.

    Actually it was a company that they bought -- in the mobile ad space, I think -- whose value had to be written down to zero. They had no choice but to recognize it at some point.

    It is just a small example of a set of poor decisions over the past decade that will slowly start to catch up with them.
  • Reply 11 of 156


    So earnings were up 4c from 69c to 73c over LY, excluding accounting shenanigans which means they will pay less tax on their increased earnings? Looks like that's what most are taking away from this, hence the reaction on the street.

  • Reply 12 of 156
    triggstriggs Posts: 28member
    A one-size-fits-all operating system, of course! That is so obvious now. Well, except for Sync because, you know, cars are different. And Xbox, logically, because entertainment systems have different needs from PCs.
  • Reply 13 of 156
    anantksundaramanantksundaram Posts: 20,403member
    shaun, uk wrote: »
    It's a shame Apple opted to move away from the enterprise market because Microsoft is there for the taking. 

    Apple does not do low margins. The enterprise market will have to come to Apple.
  • Reply 14 of 156
    solipsismxsolipsismx Posts: 19,566member
    [VIDEO]



    Actually it was a company that they bought -- in the mobile ad space, I think -- whose value had to be written down to zero. They had no choice but to recognize it at some point.
    It is just a small example of a set of poor decisions over the past decade that will slowly start to catch up with them.

    I would bet against MS's next quarter being a loss.
  • Reply 15 of 156
    quadra 610quadra 610 Posts: 6,757member

    Quote:

    Originally Posted by Hellacool View Post





    I am sure if they get desperate, they can use all that cross licensing they acquired when the bailed Apple so many years ago.


     


    They didn't bail out Apple. Apple bailed themselves out, with court backing, using Microsoft's money.

  • Reply 16 of 156

    Quote:

    Originally Posted by hmm View Post


    They wrote off a lot of assets against a very high gain in revenues. It's not clear whether they had to be written off against the current quarter or if they're just trying to minimize tax liability.

     



    Can you translate that to english?

  • Reply 17 of 156
    MarvinMarvin Posts: 15,310moderator
    Earnings were hit hard by a $6.19 billion write-down related to the company's acquisition of online ad agency aQuantive Inc. which was purchased for $6.3 billion in 2007.

    All these big companies, they write off everything:


    [VIDEO]

    Not counting the write-down of its online services division and the deferred revenue connected to the Windows 8 promotion, Microsoft's earnings were actually in the black at 73 cents a share.

    Yeah, let's see if Windows 8 pulls through for them. Sad thing is, they have x86 vendors so locked down that they can pretty much guarantee revenue from 300 million+ machines and a pretty significant percentage of them in Office sales too. It wouldn't even matter the quality of the OS, there's no viable alternative for non-Apple x86 hardware manufacturers.
  • Reply 18 of 156
    9secondko9secondko Posts: 929member


    And their solution to stop losing money?


     


    Stop selling on Mac.


     


    LOL


     


    No wonder the company is toast.


     


    Then there is that brick that can't decide if it's a laptop or a tablet...


     


     


    Apple has had the Surface for a while now... it is called the MacBook Air.

  • Reply 19 of 156
    mj webmj web Posts: 918member


    LOL

  • Reply 20 of 156
    nasseraenasserae Posts: 3,167member

    Quote:

    Originally Posted by Hellacool View Post





    I am sure if they get desperate, they can use all that cross licensing they acquired when the bailed Apple so many years ago.


     


    You mean the cross-licenseing, product commitments, and money they had to pay as part of the settlement for stealing Quicktime code?

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