Microsoft misses targets in buildup to Windows 8

Microsoft just reported financial results below Wall Street’s expectations for the September quarter, posting $16.01 billion in revenue and profits of 53 cents per share.

The results include the impact of a Windows 8 upgrade program. Accounting rules require the company to defer revenue on Windows 7 sales that are eligible for upgrades until after the new operating system debuts next week.

On the same basis, Wall Street analysts polled in advance by Thomson Reuters had expected Microsoft to report earnings of 56 cents per share on revenue of $16.4 billion.

If the company hadn’t deferred the revenue, the overall figure for the quarter would have been flat at $17.4 billion.

The Windows Division continues to feel the effects of a difficult PC market. Microsoft says it saw a drawdown in inventory in the industry in advance of the Windows 8 launch. However, the company notes that Windows 8 pre-sales revenue is 40 percent higher than Windows 7 pre-sales revenue in the comparable time period.

Here’s a Microsoft chart showing Windows revenue trends, with the Windows business declining 9 percent from the same quarter a year ago even after adding back in the deferred revenue.

Microsoft’s chief financial officer, Peter Klein, sums things up in the earnings release: “While enterprise revenue continued to grow and we managed our expenses, the slowdown in PC demand ahead of the Windows 8 launch resulted in a decline in operating income. Multi-year licensing revenue grew double-digits across Windows, Server & Tools, and Microsoft Business Division products as businesses commit to our technology roadmap.”

In the Microsoft Business Division, home to Microsoft Office and related products, revenue fell 2 percent to $5.5 billion, due in part to a similar upgrade offer for the next version of Office. Without that revenue deferral, the division would have been up by 1 percent. Here’s that chart from Microsoft’s earnings slide deck.

Revenue in the company’s Server & Tools Division was up 8 percent, to $4.5 billion.

The company’s Online Services Division reported a 9 percent increase in revenue, to $697 million, and the division narrowed its operating loss to $364 million, from $514 million in the same quarter last year.

And the Entertainment & Devices Division, home to the Xbox business, continued to feel the impact of the sluggish console market, with revenue down 1 percent to $1.9 billion, and operating income down 94 percent, to $19 million, due primarily to payments made to Nokia as part of their Windows Phone partnership. Here’s that Microsoft slide …

Microsoft’s earnings conference call starts at 2:30 p.m., available here.

  • guest

    “I love our strategy. The board loves our strategy”

    - Steve Ballmer.

  • guest

    Not a pretty picture. As bad or worse than google’s report today.

  • Guest

    That’s great news for the Online Services Division. At this rate then they should stop losing money around April 2015!

  • Guest

    The slowdown in PC demand is not due to an upcoming Windows 8 launch. It’s due to a structural decline in demand for fat clients. In spite of Microsoft’s attempt to make the fat client mobile with Surface it is doubtful this strategy will offset the decline in PC demand. Just look at desktop sales across the board. HP, Lenovo, Dell, Acer, etc all see structural challenges with their PC sales. How is this merely a dip in anticipation of Windows 8? It’s not a dip and it will not go away or recover. Prepare for the inevitable: the fat client PC will slowly fade away and our lives will be more mobile than ever assisted by mobile devices offering standards based browser windows that allow unfettered access to information. Exciting times ahead.

    • guest

      Testify brother!

    • guest

      Wow, can you tell fortunes too?

  • Guest

    Congrats to Microsoft on their upcoming launches! The quarter before Windows 8 ought to be as low as possible so as to maximize growth in the quarter to come.

  • guest

    And “the most epic year in Microsoft history” begins. Maybe Ballmer meant epic as in fail?

  • Guest

    You know it’s a bad earnings report when even their head of PR is tweeting about a football result instead.

  • guest

    Put simply, their three largest businesses all missed street expectations and the remaining units, which exceeded those, amount to less than 20% of total revenue.

    Result: Stock down 2.91% at this time.

    Fire Ballmer. Fire the board. Start Over.

  • Mark

    Embarassed to say I’ve held this stock since Ballmer became CEO. But following this report, and listening to the webcast after, I decided to dump it and sold out today. I’ve lost track of how many years it has performed worse than even my SPY. A majority of them since 2000, I believe. Ballmer justhasn’t gotten it done. And now it looks like the company is being disrupted. A real shame.

  • dand

    Charts above are misleading, because they show last 5 quarters… but everyone knows there are seasonal trends in tech (especially consumer) industry. So you need to look at the first and last bars only…. or show more than 5 bars (show last 12… so you can see the revenue trends in context.)