Microsoft posts first loss
An accounting charge related to Microsoft's ill-fated acquisition of an online advertising business led to a loss for the software giant's last quarter, its first in more than two decades as a public company.
But while that loss can be played down as an anomaly for a company that has been a reliable moneymaker for decades, weak sales in Microsoft's Windows business cannot. Microsoft said yesterday that its revenue from Windows fell 13 per cent in the fiscal fourth quarter, which ended June 30th.
Windows sales looked worse than they really were in part because Microsoft had to change how it recognized that revenue because of an offer it has extended to people who buy PCs running Windows 7. Under that offer, users can pay a small fee to upgrade to Windows 8 when it comes out in October.
If Microsoft had not had to defer a portion of its Windows sales - $540 million in this case - its Windows revenue would have declined 1 per cent, still a dismal performance that underscores the challenges in the traditional computer business.
Sales in the PC market have stagnated as consumers have diverted their technology spending to more exciting technologies, including smartphones and tablet computers like the iPad. Microsoft and other companies in the PC industry are hoping to reignite growth in the business with the release of Windows 8, an operating system that has been revamped to work better on touch-screen devices.
The success of the iPad has forced other significant changes at Microsoft, most notably the company's decision to design and sell its own tablet computer, called Surface. Technology executives and analysts say they believe Microsoft chose to make Surface, the first computer of Microsoft's own creation, after its partners in the hardware business failed to come up with products compelling enough to rival the iPad.
In an interview, Peter Klein, Microsoft's chief financial officer, said sales of PCs to businesses were growing, but that consumer sales, mainly in developed markets like the US and Europe, were weak.
Mr Klein said that could be partly attributed to broader weakness in the economy and competition from tablets. Mr Klein said the company believed Windows 8 would help to change things.
"We're pretty encouraged by the impact that can have," he said.
Other parts of Microsoft's business fared better, including its server and tools division, for which sales rose 13 per cent. At the company's business division, which includes its Office family of applications, sales rose 7 per cent.
Microsoft has also been struggling to improve its position in the smartphone business, where competitors like Apple and Google have gobbled up most of the market.
Mr Klein said sales of handsets running Windows Phone, Microsoft's mobile operating system, increased more than 50 per cent between the company's fiscal third and fourth quarters. Microsoft reported a net loss of $492 million, or 6 cents a share, in contrast to net income of $5.87 billion, or 69 cents a share, during the same period a year ago.
The company said its revenue was $18.06 billion during the quarter, up from $17.37 billion a year ago.
Without the charge related to the company's $6.2 billion write-down of the value of aQuantive, the online advertising business it acquired in 2007, Microsoft would have earned 67 cents a share.
That compares to the 58 cents a share that analysts on average expected Microsoft to report, according to Thomson Reuters.
The weakness in sales of Windows did not surprise analysts who follow the company. Research firms have been warning of poor computer sales for weeks now. Rick Sherlund, an analyst at Nomura Securities, said in a research note that Microsoft exceeded his expectations for the quarter, partly by keeping its costs under control.