Microsoft's quarterly results beat expectations, eyes new mobile devices

Friday 19 April 2013 08.31
Microsoft's latest quarterly revenues rises by 18%
Microsoft's latest quarterly revenues rises by 18%

Microsoft reported financial results for its latest quarter last night, showing a deep - but largely expected - impact from the slowdown in global personal computer sales.

Investors had seemed to be expecting worse after some recent dismal reports on the PC slump.

But outside its Windows division, Microsoft posted solid results from its Office, software tools and Xbox divisions.

The company said its net income was $6.1 billion, or 72 cents per share, for the fiscal third quarter, which ended in March. That was up 18% from $5.1 billion, or 60 cents per share, a year ago, and beat the forecast of analysts at 68 cents.

However, analysts have trimmed their forecasts quickly in the last few weeks - a month ago, they were expecting Microsoft to post 77 cents in earnings.

Last week, research firm IDC said PC sales fell 14% in the quarter, a record decline. It blamed, in part, Microsoft's new Windows 8, which makes a clean break with the look and workings of old Windows in order to work better with touch screens. Buyers seem daunted by the new interface, IDC said.

The company said that an updated version of Windows 8 to be released later this year and code-named "Blue," will be in part a response to "customer feedback." Many complaints have focused on the lack of a start button for those who prefer the older "Desktop" environment, which is hidden behind the new tile-based interface.

Last night's results showed that revenue for the quarter rose to $20.5 billion, up 18% from a year ago and matching analyst forecasts.

But both earnings and revenue were skewed by software accounting practices. Microsoft offered a $15 upgrade to Windows 8 for Windows 7 computers purchased after June 2 later. It was not able to start recognising the full value of the software licenses until these offers were redeemed or expired. In the latest quarter, Microsoft was able to recognize $1.1 billion of such deferred Windows revenue, greatly boosting the overall figure.

Stripping out the deferred revenue, overall revenue rose 8%, and revenue in the Windows division was flat with a year ago. Even if consumers are not buying many Windows 8 PCs, businesses are still upgrading from Windows XP to Windows 7 at a rapid pace.

Stripping out deferred revenue and the effect of a $733m fine levied by the European Commission, Microsoft earned 65 cents per share, up 8% from a year ago. At the company's largest division, Business, revenue rose 8% from a year ago to $6.3 billion.

Microsoft also said that its chief financial officer Peter Klein is leaving at the end of the fiscal year, in June. He has been in his current role for four years and at the company for 11 years. The company plans to name a new CFO from its finance team in the next few weeks.

The company also revealed last night that it is working with manufacturers to produce a line of small touch-screen devices powered by Windows, apparently intended to compete with tablets like the iPad Mini and Amazon Kindle Fire.

Peter Klein said on a conference call last night that the new devices will be available in coming months at competitive prices.

Microsoft is struggling to extend its software into smartphones and tablets as consumers are turning away from PCs, the foundation of its empire. Over the winter, it launched two larger tablets under the Surface brand. And in October, the company took a large stake in Barnes & Noble's digital unit, which sells a line of entertainment-oriented tablets under the Nook brand.

The company employs about 2,000 people in Ireland.