Microsoft announced another down quarter this morning. Revenues in the September quarter were down 14 percent to $12.92 billion, and net profits declined even further to $3.57 billion, or $0.40 a share. The consensus estimate was $0.32, so Wall Street is happy and the shares are rallying (up 10 percent in early-morning trading).
Investors will forgive the poor performance coming out of the recession (are we out of that yet?), because they hope that yesterday’s launch of Windows 7 will bring back the shine to the stock. If you look at revenues for the Windows business, it certainly looks like both businesses and consumers have been delaying purchases and upgrades in anticipation of the new operating system. The Windows business saw revenues decline by 37 percent, or $1.7 billion, from last year, to $2.6 billion. The closely-related Business division, which includes Office, was down $500 million in revenues, to $4.4 billion.
Microsoft needs to revive these franchises with Windows 7 at a time when it is increasingly under attack by cloud-based productivity apps from Google and others. But Windows 7 should give Microsoft some cover as corporations go through their robotic upgrade exercises. The company recorded $1.5 billion in deferral revenue associated with Windows 7, which pretty much covers the gap from last year.
The two businesses which held steady in terms of revenue were Servers and Tools ($3.4 billion) and Entertainment ($1.9 billion). Microsoft sold 2.1 million Xboxes in the quarter, and is no selling an average of 8.7 games per console, more than any other videogame console. Profits nearly doubled to $312 million, and Xbox Live revenues grew more than 50 percent, although Microsoft does not specify the absolute number.
Looking at Microsoft’s online business, once again the loss in that business ($480 million) was almost the same as its revenues ($490 million), which implies that it is actually losing twice as much as it is bringing in. We saw the same trend last quarter, as Microsoft continues to invest heavily in this business via Bing and other products. Online advertising revenues were down 3 percent (at least that was better than Yahoo’s 12 percent decline), and search ads from Bing saw a “mid single digit” increase.
Below is a table breaking down Microsoft’s revenues by operating division (click to enlarge):
What planet are you from? Don’t look at the headlines. Look at the numbers and look at the reaction.
up 9.5% since they released the numbers.
Your biasness shows more than Fox News.
In fairness is it reasonable for a tech journalist to understand market guidance and deferred revenue?
Probably not.
In which case they shouldn’t be writing about it.
We did tell you last time, a loss of about 500million does not “match” revenues of about 500m. It mean their costs were about 1bn. They spent $1 to earn every 50c
Yep, this is how you can tell Erick wrote an article (see yesterday’s on NYT online ad numbers being 1/4 of all ad numbers, when they were 18%.
Yep.
@Rob, I see what you are saying. Tried to make it clearer in the text.
@jeremywright, my numbers in the NYT story are correct.
Only in M$land is a 3.5 Billion profit in a quarter a bad thing.
Apparently no one at TechCrunch understands financials.
“Microsoft said the company recorded $1.47 billion in deferred revenues in the quarter related to the Windows Upgrade Option program”
“Had that revenue not been deferred, the company would have reported revenue for the quarter of $14.39 billion, down 4% from a year ago, and profit of 52 cents a share, up 8% year-over-year.”
Some more info…
Bill Koefoed, Microsoft’s general manager of investor relations: the company sold more Windows licenses in the quarter than ever before, 6% above the previous quarterly peak.
Since some of the Windows OS sales include promised upgrade discs, they only count half of that towards this quarter.
Note: if you have to go through an elaborate explanation as to why Microsoft’s financials were actually NOT THAT BAD, then they probably had a bad quarter.
For instance, Apple has been deferring revenue for the iPhone for several quarters now and they still made record profits.
This is a special one-time event, which is why it should be noted.
Microsoft defers revenue for the software subscriptions it sells to Corporations as well – just like Apple does for the iPhone.
Last year for this quarter, it had 4B of “Recognition of unearned revenue” due to software subscriptions.
This year, it jumped up to 6.7B
Same thing happenned with Vista…notice the abnormal decrease*, the abnormal jump** and then the return to normal levels.
REVENUE
Q4 2007 3.8B (Apr – Jun 2007)
Q3 2007 5.27B (Deferred Vista revenue recognition of 1.2B) Launch of Vista **
Q2 2007 2.5B (Oct – Dec 2006) *
Q1 2007 3.3B (Jul – Sep 2006)
INCOME
Q4 2007 2.77B (Apr – Jun 2007)
Q3 2007 4.2B (Deferred Vista revenue recognition) Launch of Vista **
Q2 2007 1.83B (Oct – Dec 2006) *
Q1 2007 2.6B (Jul – Sep 2006)
This is just something any person evaluating the earnings report would take into consideration.
The deferred revenue was noted in the story.
Microsoft made 3.5bn to Apple’s 1.9bn this quarter.
Microsoft Windows is not a ‘franchise’
‘Microsoft needs to revive these franchises with Windows 7 at a time when it is’
or more accurately: http://www.goog...?q=aapl%2C+msft
I swear I’ll throw a chair if you keep bringing Apple up!!11!
It looks like cost cutting is helping their cost side. Layoffs and lowering salary in the past few years
http://www.sala...ion.htm?order=4
Just as interesting to see their stock is almost multi year high after 20002 recession with multi year low revenue.
Does it bode well for future?
jobless recovery = recession, for me.
Better numbers than projected last quarter. From the defferred revenue it looks lke Windows 7 will be a pretty massive product.
Xbox looks like it’s on an uptick which is good, online service still fall under the ‘Why bother?’ category.
Not bad at all.
It’s interesting to compare this to Apple’s recent earning’s report:
AAPL:
$1.67b in profits on $9.87b in quarterly revenues and a market cap of $184.56b
MSFT:
$3.57b in profits on $12.92b in quarterly revenues and a market cap of $254.93b
That means that AAPL’s revenues were about 77% of MSFT’s, and its market cap is about 72% of MSFT’s. MSFT is still a bunch more profitable, though.
Still, who’d a thunk it 10 years ago? (Actually, I was really startled to notice it even today….)
All the more crazy, Apple does this with only 12 percent of the market. Apple is bigger than both Dell and HP combined and both of those companies have more market share than Apple.
So much for the importance of market share. I guess it’s only important if you’re actually making money.
Apple is just lucky that there are people out there that will pay for way overpriced products.
You get what you pay for.
Microsoft is not in any trouble. The down economy is affecting everything from sales of underwear to sales of operating systems. Also, with the anticipation of Windows 7, people might hold off on getting computers or upgrades.
Your fanboy mentality is blinding you. What attack from online productivity tools? Maybe for personal users who would not spend the $299 (and more) on office but have you ever been to a business (mid tier and above) that does not use Word or Excel? How come the open format has not taken off the way that it was supposed to? Maybe because the people who actually buy the software know better than using anything else.
Regardless, Microsoft is still a very strong company financially.
Windows 7 should definitely help and investors will most likely be happy in the coming months. I am pretty sure that Windows 7 will not be a bomb so revenues should definitely go up the next quarter.
“I am pretty sure….so definitely….should go up the next quarter”
Sounds like you’re really sure.
I’m just happy that the stock is over $25. It’s been a long time.
TC is a great place to see Apple’s PR department at work.
For non-biased analysis of results, there are plenty of better sources, I’d suggest starting with Bloomberg: http://www.bloo...id=a4ddQhjYNKoU
TC – you are really the Fox news of the internet. So much bias against Microsoft, and for what reason? You need to be more even headed when comparing the good as well as not so good aspects of a company. Hope you learn from the all the comments on the post….But wait, I guess your job is to create sensation, doesnt matter positive or negative…..Ahh, I wasted my time again with my words falling on deaf ears!
MSFT’s financial announcements reflected better performance in the quarter than analysts had expected, but I understand your point.
I often feel that the competition from Google Apps is very much exaggerated, particularly here on TechCrunch; outside of the high-tech world it is essentially unknown and unused in business.
I have no doubt that cloud computing apps will continue to be very important, but it is doubtful that Google’s Apps will end up being the best unless Microsoft doesn’t launch their cloud product anytime soon and gives Google a few years to improve their “apps” products and increase adoption.
Enough with these uninformed TC writers.
Companies that value their data are not using Google or other cloud options. Does Arrington keep your financials in an xls file on Google Docs? I doubt it. Have fun working on your last minute report at 3am when your ISP decides to do routine maintance and you can’t get to domain.com to edit YOUR document. Or domain.com is doing maintenance. You get the idea.
What is your definition of “robotic upgrade exercise”? You mean where my IT dept tests the majority of our custom software and applications on the newest OS and then rolls it out 6-12months after the major bugs have been rolled out?
We never had a full rollout of Vista and didn’t really need to. On one of my work PCs I was running Windows 2000 up until 2008 and I had little to no reason to upgrade to XP or Vista except due to the fact our IT dept (and MSFT) no longer wanted to support 2000.
PCs are relatively cheap, harddrive space costs pennies, and 4-8GB of RAM is the norm. Windows7 will be adopted much more quickly as companies replace their older hardware.
Lastly it’s hard to GROW your OS when 95% of the world uses it.
That’s a pretty sorry excuse for a crappy OS. Booo to innovation and new growth!
In other wall street news AMZN sets an all time record high and surged over 20% today. The stock is now higher than it was during the dot com boom of 1999.
A couple of random thoughts-
1) Given the lack of commercial intent while users are actively using Microsoft Office, Microsoft is going to have to rely heavily on data collected from the browser to create valuable advertising inventory in Microsoft Office.
2) This whole post reminds me of Chris Anderson’s book “Free”. Chris did a good job of summarizing the evolving use of ad-supported models.