Microsoft Earnings Down As It Prepares Major Product Updates

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Marking Microsoft's only second consecutive down quarter ever, the software giant on Thursday reported $13.10 billion in revenue during the fourth quarter -- a decline of 17% from $15.83 billion.

The poor earnings come at a critical time for Microsoft as it prepares to roll out updates to nearly every one of its major products in fiscal year 2010. The Redmond-based company shocked the industry last quarter when it reported a 6% year-over-year revenue decrease, from $14.45 billion down to $13.65 billion -- its first-ever year-over-year revenue decline.

On Thursday, Microsoft reported net income of $3.05 billion, or 34 cents a share, for its fourth quarter, which ended June 30 -- down sharply from the $4.30 billion, or 46 cents a share, it earned in the fourth quarter a year ago.

"Our business continued to be negatively impacted by weakness in the global PC and server markets," said Chris Liddell, chief financial officer at Microsoft.

For the full year, Microsoft posted a 3% decline in revenue to $58.44 billion, along with an 18% fall in net income to $14.57 billion.

This time last year, Microsoft reported fourth-quarter 2008 revenue of $15.84 billion, and $60.42 billion for the entire fiscal year -- an 18% increase over the year before.

Microsoft's troubles are being attributed to the continued global recession and resulting poor PC sales. Gartner Research recently reported that worldwide PC shipments decreased 5% year-over-year in the second quarter of 2009.

"While economic conditions presented challenges this year, we maintained our focus on delivering customer satisfaction and providing solutions to our customers to save money," said Kevin Turner, chief operating officer at Microsoft. "I am very excited by the wave of product and services innovations being delivered in this next fiscal year."

Microsoft is preparing to launch new products such as Windows 7, Windows Server 2008 R2 and Office 2010.

Microsoft also recently debuted its own Bing search engine, and has reportedly reengaged Yahoo in talks to form a search partnership.

To weather the unprecedented downturn, Microsoft announced the first job cuts in its history in January, eliminating some 5,000 positions.

Looking ahead, Liddell was cautiously optimistic. "We generally expect the economic conditions to continue," he said regarding the short-term. Looking at 2010, he added, "We see the potential for improvement."

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0 comments on "Microsoft Earnings Down As It Prepares Major Product Updates".

1. Roy Fuchs from MFN
   

   commented on: July 24, 2009 at 3:02 p.m.

   Now is the time to give MSFT a total reappraisal. It is no longer a high growth company, gaining by using its begged, borrowed and stolen technology to ride the wave of net new PC placements.

   Today MSFT is largely a utility. Its two biggest products, its OS and Office, are cash cows, holding high shares in low growth markets. In fact, MSFT's major markets for these are growing more by replacement that due to net new placements.

   And both of these are under attack by Google, among others, who will give their comparables away - attacking MSFT in the same way MSFT went after Netscape, giving away a product its competitor had been selling.

   And Bing? A rounding error. It grew its 8% share by 8% last month, largely by cannibalizing YHOO. Google has a share eight times as large. One comparison is Firefox. After maybe five years IE still has the better part of a 90% share of the browser business (while IE has increasingly become a "me too" product). And, Bing didn't show us any new technology. All it did was to add a few wrinkles that are readily replicable by Google, et al.

   AAPL stated, more than once during its earnings call earlier this week that it would not pursue the PC makers down market. They have no interest in $600 commodity netbooks. Instead, they will stay with products that have some uniqueness and so offer higher margins. While MSFT may not be the leader in moving down, they seem to have, at the least, been trapped.

   Looking ahead, I am a Vista user. I have to hear something fabulous about Win7 to even think of paying to replace the lousy OS I am now stuck with (I had to replace an older PC two years ago, before the resurgence of XP). And corporate users seem to have ignored XP. Does that mean that there is pent up demand Win7, or will today's tighter budgets induce larger corporate PC buyers to stay with XP?

   In sum, MSFT is no longer a high growth high tech company. It is a mediocre software utility moving into middle age, holding share, but not growing terribly rapidly. Might things change over time. But for now, it's salad days are over.

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