Microsoft tops expectations — and posts its first-ever loss

Microsoft posted a quarterly loss of $492 million this afternoon, the first time in its history that the company has dipped into the red, as the $6.2 billion write-down from its failed aQuantive acquisition took an unprecedented toll on the company’s bottom line.

(Post updated to correct size of quarterly loss.)

However, excluding that rather giant asterisk, and adding back in $540 million in revenue deferred from the quarter due to a Windows 8 upgrade promotion, the company’s adjusted profits were $6.93 billion, or 73 cents per share — actually beating the expectations of Wall Street analysts polled in advance by Thomson Reuters.

“We delivered record fourth quarter and annual revenue, and we’re fast approaching the most exciting launch season in Microsoft history,” said Microsoft CEO Steve Ballmer in the company’s earnings news release. “Over the coming year, we’ll release the next versions of Windows, Office, Windows Server, Windows Phone, and many other products and services that will drive our business forward and provide unprecedented opportunity to our customers and partners.”

Microsoft slide showing Windows results. Click to enlarge.

Despite Ballmer’s optimism, the flagship Windows division continued to feel the effects of the sluggish market for personal computers. Even after adjusting for the Windows 8 deferral, revenue in the Windows and Windows Live Division fell by 1 percent to $4.7 billion, compared with the same quarter a year ago.

The traditional PC market is being undercut by the rise of alternative devices including tablet computers, led by Apple’s iPad. Microsoft is adjusting its approach with Windows 8, using a tile-based interface designed to work across everything from desktop PCs to tablets to wall-mounted displays.

For the quarter, Microsoft’s Server & Tools revenue was up $568 million, or 13 percent. Microsoft cited 22 percent revenue growth from multi-year licensing of its public and private cloud solutions as the primary driver of the division’s growth.

Online Services Division results. (Click to enlarge).

The company’s Online Services Division saw a revenue increase of $55 million, up 8 percent to $735 million, thanks to a boost in search advertising revenue, overcoming a decline in display ad revenue. Not counting the aQuantive write-down, which was charged to the division, Online Services reported a loss of $480 million, a 36 percent improvement over last year.

“While our search business has been improving, our expectations for future growth and profitability for OSD are lower than our previous estimates,” the company said.

The Microsoft Business Division, home to Microsoft Office, saw a 7 percent increase in revenue, to $6.3 billion. Operating income rose 9 percent, to $4.1 billion.

Entertainment & Devices, home to Xbox, posted revenue of $1.78 billion, up 20 percent, due largely to revenue from the addition of Skype to the division.

E&D posted a quarterly loss of $263 million, in part due to regular payments from Microsoft to Nokia for to compensate the mobile phone maker for its Windows Phone. Microsoft didn’t disclose the size of the latest payment, but earlier today Nokia said it was $250 million.

The quarter ended June 30 also marked the end of Microsoft’s fiscal year. Not counting the one-time fourth quarter charges, the company’s revenue was $74.26 billion, up 6 percent for year, and its earnings were $2.78 per share, up 5 percent from last year.

Via Microsoft, here’s a more detailed look at the divisional results …

Here’s a Microsoft slide showing the company’s overall outlook. Click to enlarge.

  • http://blog.nordquist.org Brett Nordquist

    Does the person at Microsoft who pushed for the aQuantive purchase still have a job there?

    • guest

      One would hope not.

      • guest

        I believe Ballmer is still there.

    • FailYourWayUp

      Undoubtedly they do and surely got a promotion out of it.

      After all their annual review would’ve listed “Successfully developed and executed aQuantive acquisition strategy culminating in the successful closing of the deal”.

      And then they got their promotion (for being successful) and moved on. That was 2007 which is 10 reorg cycles in a company that does reorgs on average every six months. I doubt anyone involved in making and executing the deal is still around doing that.

      For all the harping lately on the review system one thing it fails to do is have any sort of accountability or measurement over years. All you have to do is ship the product/acquire the company to claim it on the review. The product/service doesn’t actually have to sell, be good or successful (that’s marketing and supports problem), it just has to ship/deal be closed.

      After all, did you hear about Roz Ho getting fired after the Kin? I think she actually got a promotion right before they killed the Kin.

      Failing your way up is a well-documented phenomenon. Once you hit Partner you’re nearly untouchable. Your successes are successes and your failures are you willingness to take risks. Kind of like Wall Street banker. It’s nice to be the 1%.

      • Suzette

        All that didn’t answer the question. Who approved the aQuantive buy and does he or she still work at Microsoft?

        If you know the answer, please post it.

        • guest

          You and the Nordquist troll need to clue in. This wasn’t a deal for $50K. It was for SIX BILLION. That amount required CEO and board approval. Even if you two found this mysterious lone gunman you think is responsible, firing that individual would be a simplistic answer to a very complex failure.

    • http://geekwire.com Todd Bishop

      Kevin Johnson was the president of Microsoft’s Platforms & Services Division at the time, and as I understand it, he oversaw the deal. He left the next year to become the CEO of Juniper Networks.

      • http://www.christopherbudd.com Christopher Budd

        That sounds right. In the dark, dusty recesses of my memory from 2007 I seem to recall seeing a “We’re super excited” email from Kevin Johnson (Kevinjo).

        • guest

          He wasn’t alone. Satya was all over it as well.

    • guest

      A deal the size of aQuantive doesn’t get done by one person. Numerous senior leaders were involved, including Ballmer and the board. At the time it was the largest deal in their history. And no, nobody has been fired over it specifically and likely nobody will be.

  • guest

    When you look at revenue year over year, the results look ok, but when you look at operating, it’s a sea of red. Across multiple divisions. Not good. Everything was down year over year except S&T and BD, and of that OSD and E&D were in the red operating. Pretty grim, considering that Q1 is going to be a tough quarter as well.

  • Susan

    Congratulations to Microsoft on a great quarter absent this one-time charge! We are proud that the company is moving forward, learning from the “scar tissue” from a mistake, continuing to innovate and develop great products for home and business alike.

    • guest

      Do you know you sound like a North Korean propaganda machine? They said the same thing after their failed rocked launch.

      • WeLoveDearSuccessor

        It would appear that there’s a small army of propagandists out there. Nearly every major Geekwire story gets a comment like this (“Congratulations to Dear Successor for for the write down on the aQuantive deal and the near-successful launch of our new rocket!”).

        I’m all for comments and dialog but there has to be thought for there to be dialog. These rah-rah posts are just getting annoying.

        • guest

          I think we all understand corporate PR and marketing has to do some spin, but come-on! At least do a better job of spinning! These lame Geekwire rah rah comments in just about every other story are just that, lame! Put in a better effort at least, don’t steal from the North Koreans.

          • ChooseYourCommentCarefully

            Yeah, Dear Successor doesn’t like thieves. And he’s got nukes pointed right at Seattle/Redmond!

            Keep it up and BOOM!

      • Kim

        We apologise for the confusion. We are not associated with the Democratic People’s Republic of Korea.

    • guest

      Susan, if you want to see a “great quarter” look at Apple’s result. If you want to see a company that is being disrupted and inflicting further damage on itself due to mismanagement, you have MS’s quarterly loss.

    • guest

      <4% growth is not a great quarter. It's an embarrassing result, particularly as Google is reporting 35% growth and Apple is enjoying even more than that, despite now being a much larger company than MS. Growth is effectively over at MS. Windows is in decline. Office is holding on, but for how long is the question. And once both Windows and Office stop growing, S&T will eventually follow. And unfortunately there's nothing to replace those growth engines. Because Online and E&D are a complete failure, as this report makes clear.

      Fire Ballmer. FIre the Board. Start over.

  • http://twitter.com/puckyourself Joe McGrath

    Your math is wrong. That table shows a 192M gain, both as displayed and when you total the income of segments.

    • http://twitter.com/puckyourself Joe McGrath

      To correct this article, they lost 492M in the current quarter, as a result of the provision for income taxes being greater than net income before taxes. Operating income was 192M
      Somewhere, the pay your fair share of tax propagandists are trying to somehow spin an effective tax rate for the quarter of 237% to something around 1%.

    • http://geekwire.com Todd Bishop

      Thanks, Joe, you’re right, I misread the statements and gave the wrong number in the first paragraph — but it’s actually a $492 million net loss for the quarter.

      The $192 million gain shown in the table is operating profit, prior to additional charges. Bottom line, Microsoft posted a $492 million loss for the quarter.

      Thanks for the help. I’ve corrected the number in the first paragraph and noted the correction. Here’s the full financial release with all the statements if you want to check them out.

      http://www.microsoft.com/investor/EarningsAndFinancials/Earnings/PressReleaseAndWebcast/FY12/Q4/default.aspx

  • guest

    “and posts its first-ever loss”

    I Love our strategy. The board loves our strategy.
    - Steve Ballmer

  • guest

    Can we finally call this nearly thirteen year long Ballmer experiment a failure, or do we have to wait until next year when W8 flops too?