Microsoft reports first loss as public company
LOS ANGELES (AP) - Microsoft posted its first quarterly loss in its 26 years as a public company on Thursday as it declared a struggling online ad business a bust and prepared for one of the biggest product updates in its history.
The software company had warned two weeks ago that it would take a $6.2 billion charge in the April-June quarter because its 2007 purchase of online ad service aQuantive failed to help it compete with Google Inc. The amount reflected the bulk of the $6.3 billion acquisition cost.
The online ad business remains just a tiny part of Microsoft - comprising just 4 percent of its annual revenue. Most of the company's sales come from its Office suite of productivity software, Windows operating system and, increasingly, computer servers.
Upbeat business software and server sales in the quarter helped offset a flat market for personal computers, which had put a damper on Windows sales. Take as a whole, the software giant's results beat analyst expectations.
Shares rose 2.4 percent to $31.39 in after-hours trading following the earnings announcement.
Including the big write-down on aQuantive, Microsoft booked a $492 million loss in the fiscal fourth quarter, or 6 cents a share. That compares with earnings of $5.9 billion, or 69 cents, a year ago.
Revenue rose 4 percent to $18.06 billion.
Excluding the adjustment and the deferral of some revenue related to its upcoming Windows 8 operating system, earnings came to 73 cents per share.
Analysts polled by FactSet were looking for 62 cents per share of earnings on revenue of $18.15 billion.
"The quarter was pretty much in line across major segments of the business," Nomura analyst Rick Sherlund said.
Microsoft's fortunes are now tied to the Oct. 26 release of Windows 8, the most extreme redesign of the company's flagship operating system since 1995. Windows 8 will feature a new look and boast new technology that will enable the operating system to work on touch-controlled tablet computers, as well as Microsoft's traditional stronghold of desktop and laptop computers. In conjunction with Windows 8, Microsoft is planning to release its own tablet, the Surface.
A revamped version of Office, which bundles word processing, spreadsheet and email programs, is also in the works. Earlier this week, Microsoft previewed how the next version of Office will work on tablet computers running on Windows 8.
The company was conservative forecasting how much the product revamps will help drive revenue.
Chief Financial Officer Peter Klein told analysts that for the coming year, "We expect Windows revenue to be roughly in line with the PC market" which it said was flat in the last quarter and is expected to continue that way in the three months through September.
Even if Windows revenue is flat, that will be an improvement since revenue in the division has now dropped in five of the past seven quarters. It fell 13 percent in the quarter to $4.1 billion.
Microsoft excluded from its forecast any extra Windows sales that would come from its Surface tablet, for which it gave no outlook.
With Windows 8-powered devices still a few months away, some prospective PC buyers have been postponing their purchases so they can buy the latest technology from Microsoft this fall. Others who buy certain machines running Windows 7 will be able to upgrade to Windows 8 for $15 for a limited period.
That upgrade offer means that Microsoft couldn't book all the revenue associated with Windows 7, causing it to defer some revenue into later quarters.
Thursday's loss was the first for Redmond, Wash.-based Microsofit since the company went public in March 1986.
The $6.2 billion charge is a non-cash adjustment, which companies do when the value of their assets decline. Companies have to review their assets once a year, and the just-ended quarter is Microsoft's final one for fiscal 2012.
AQuantive was Microsoft's most expensive purchase at the time, and was supposed to help it mount a more serious challenge to Google in online ads.
But the online ad division continued to post losses - totaling more than $9 billion since the purchase, not including the charge.
By contrast, Google has widened its lead, thanks in part to its purchase of DoubleClick for $3.2 billion about eight months after the aQuantive deal.
Google's search engine, a major vehicle for selling ads, has remained strong, while Microsoft's Bing search engine saw its market share drop slightly to 26 percent, from 27 percent a year ago. That includes searches through Yahoo Inc., which has been using Microsoft's search technology for nearly two years.
The software company had warned two weeks ago that it would take a $6.2 billion charge in the April-June quarter because its 2007 purchase of online ad service aQuantive failed to help it compete with Google Inc. The amount reflected the bulk of the $6.3 billion acquisition cost.
The online ad business remains just a tiny part of Microsoft - comprising just 4 percent of its annual revenue. Most of the company's sales come from its Office suite of productivity software, Windows operating system and, increasingly, computer servers.
Upbeat business software and server sales in the quarter helped offset a flat market for personal computers, which had put a damper on Windows sales. Take as a whole, the software giant's results beat analyst expectations.
Shares rose 2.4 percent to $31.39 in after-hours trading following the earnings announcement.
Including the big write-down on aQuantive, Microsoft booked a $492 million loss in the fiscal fourth quarter, or 6 cents a share. That compares with earnings of $5.9 billion, or 69 cents, a year ago.
Revenue rose 4 percent to $18.06 billion.
Excluding the adjustment and the deferral of some revenue related to its upcoming Windows 8 operating system, earnings came to 73 cents per share.
Analysts polled by FactSet were looking for 62 cents per share of earnings on revenue of $18.15 billion.
"The quarter was pretty much in line across major segments of the business," Nomura analyst Rick Sherlund said.
Microsoft's fortunes are now tied to the Oct. 26 release of Windows 8, the most extreme redesign of the company's flagship operating system since 1995. Windows 8 will feature a new look and boast new technology that will enable the operating system to work on touch-controlled tablet computers, as well as Microsoft's traditional stronghold of desktop and laptop computers. In conjunction with Windows 8, Microsoft is planning to release its own tablet, the Surface.
A revamped version of Office, which bundles word processing, spreadsheet and email programs, is also in the works. Earlier this week, Microsoft previewed how the next version of Office will work on tablet computers running on Windows 8.
The company was conservative forecasting how much the product revamps will help drive revenue.
Chief Financial Officer Peter Klein told analysts that for the coming year, "We expect Windows revenue to be roughly in line with the PC market" which it said was flat in the last quarter and is expected to continue that way in the three months through September.
Even if Windows revenue is flat, that will be an improvement since revenue in the division has now dropped in five of the past seven quarters. It fell 13 percent in the quarter to $4.1 billion.
Microsoft excluded from its forecast any extra Windows sales that would come from its Surface tablet, for which it gave no outlook.
With Windows 8-powered devices still a few months away, some prospective PC buyers have been postponing their purchases so they can buy the latest technology from Microsoft this fall. Others who buy certain machines running Windows 7 will be able to upgrade to Windows 8 for $15 for a limited period.
That upgrade offer means that Microsoft couldn't book all the revenue associated with Windows 7, causing it to defer some revenue into later quarters.
Thursday's loss was the first for Redmond, Wash.-based Microsofit since the company went public in March 1986.
The $6.2 billion charge is a non-cash adjustment, which companies do when the value of their assets decline. Companies have to review their assets once a year, and the just-ended quarter is Microsoft's final one for fiscal 2012.
AQuantive was Microsoft's most expensive purchase at the time, and was supposed to help it mount a more serious challenge to Google in online ads.
But the online ad division continued to post losses - totaling more than $9 billion since the purchase, not including the charge.
By contrast, Google has widened its lead, thanks in part to its purchase of DoubleClick for $3.2 billion about eight months after the aQuantive deal.
Google's search engine, a major vehicle for selling ads, has remained strong, while Microsoft's Bing search engine saw its market share drop slightly to 26 percent, from 27 percent a year ago. That includes searches through Yahoo Inc., which has been using Microsoft's search technology for nearly two years.
Well there go the free drinks for employees.Â
Windoze 8 will surely save the day!
 @SensationaLies If Microsoft wants to save the day they need to:
1.Get someone at the helm that is more competent
2. Ditch the stack ranking system so they can keep and attract talent.
3. Stop trying to dictate to customers what they want and start listening to customers
MS needs to make some significant changes if they want to remain a contender. Just a decade ago Apple was dying and MS was flying high. But Apple made changes, recognized industry trends and gave customers what they wanted. Now the iPhone alone makes more money than all of Microsoft. MS needs leadership more than anything else and until they get it they will slowly creep into the background as other companies chart the course of the future.
buh, bye Steve B.Â
When Microsoft stopped listening to consumer's desires (aka customers) and started forcing their changes onto their users, that was the beginning of their downfall, in my humble opinion. Windows 8 is crappily designed and is not designed for the desktop user. No wonder desktop sales have slumped. Office 2007 and on, forced users to have to relearn the Office software that consumers had been using for years. Forcing people to have to use the CLOUD was another mistake, in my opinion. I have no desire to leave anything of a personal or business nature 'in the cloud'.
 @Polincor You're entitled to your own opinion of course, but desktops are not the future.  Microsoft is changing their OS to accommodate both desktops and tablets.  The fact that it will work for both formats is a great achievement.  I think they are listening to the consumer despite your claim otherwise.  The consumers are buying more tablets, not more PCs.  And you don't like Office 2007 or 2010?  Really?  I still occasionally have to open up Office 2003 and it plain sucks in comparison.  And your data is probably safer in the cloud than on your own personal machine.  It sounds to me like you're just stuck in the past.
 @doubleoevan  @Polincor One size does not fit all, as Microsoft should have learned over the years. Late to the market with an OS that is supposed to bridge tablet and workhorse PC's? Give me a break.
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Gutless and unimaginative are the two words that best match Microsoft these days.
I skipped Vista. Hung onto XP as long as possible before updating to Windows 7. I'm pretty sure I'll be skipping over Windows 8 for as long as possible. Hopefully MS will get over their urge to make radical changes to their OS and retreat to a more familiar and practical OS.
 @Grunged Windows 8 can easily be made to look almost exactly like Windows 7 and the upgrade is less than $50.00.
 @Middle Ground Why pay for something i already own then?
If Microsoft is banking on 8 pulling them out of their funk, their doomed. 8 looks like a stinker to me!!!
In other news Ballmer and Turner continue to keep their jobs. Microsoft plans to quietly layoff their bottom 5% performers a few hundred at a time. However, they've been laying off their bottom 5% performers for so long now that no one really is a bad performer, but got to fill that stack rank quota while protecting the connected.
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Name one other CEO, one other, with Ballmer's track record that has held on to his job as long as he has.
Wow
Could it be time for Gates to take a more active role in the day to day operations?
@concerned1 Gates resigned from the company a few years ago; he is no longer part of it. He has no role in it whatsoever and has instead chose to pursue his philanthropical interests
 @northwestsurfer  @concerned1 Not even close.  Gates continues to serve as Microsoft's chairman and as an advisor on key development projects.  This is not a secret.
Didn't they also just pay $1.6B for some software company no one has ever heard of?
 @Magic 8 Ball good questions
IMO, this has been coming for a while. MS is not the innovator it used to be. It's only a matter of time before another modern day prodigy comes along and creates a new paradigm in the industry.
@Hamster73 They never really did innovate. The only reason they were so powerful before is because the field was much more limited so they were at the top of the pack. Now, they have fully matured, as has the internet and dot com phase. Microsoft no longer is a novelty, the place everyone wants to work. Ive worked there off and on since 2000 (most recently 2007) and I can tell you that the pay sucks and there is nothing special about working there anymore.
Is this still win-win...even when it's a loss?
If they would just quit throwing away money trying to play catch up they would be fine. Â Â
...and Balmer is still CEO why? There's been a steady march of really bad press for Balmer so I'm surprised he's still at the helm. MS was once a dynamic forward-thinking company but this is what happens when you put a numbers man in charge and not a dreamer.
@Poisonous Giraffe Microsoft refuses to shift their thinking and actions to reflect what consumers want. Instead, they continue to try to force everyone into old, tired technology. Take windows for example. Instead of allowing some people to think way outside the box for a tablet design, they opted to wait for a version of Windows that would work on a mobile device. It's the old - make the square peg fit into the round hole - even if it's a terrible fit. Once upon a time, Microsoft was a fun, exciting place to work. Now, the innovators have all left and moved to Google or Amazon.
 @JoeKing  @Poisonous You aren't kidding. I know some big guns that used to work on the WinOS kernel that now work at Google. I think that slow bleed has had a huge effect on them in the last 4-6 years.  That and the f-ed up stack ranking system.  I did contracting in the mid/late 90s. Very different times, then & now, for contractors and blue badges.
@JoeKing I totally agree with you. I remember working there in 2000 for the Core Networking group, winsock test team. I emailed someone about something outside of the company and they replied asking if I actually worked for Microsoft because it was the place everyone wanted to work. It really was exciting back then to be a part of it.
 @JoeKing  @Poisonous I agree