|28 Jul 2009||#1|
Microsoft releases Q4 results, profits down 29%
Microsoft’s fourth quarter earnings were better than expectations excluding items, but the software giant’s client (Windows) revenue skidded 29 percent compared to a year ago. For the three months ended June 30, Microsoft’s client revenue was $3.1 billion, down from $4.36 billion a year ago. That slide in Windows revenue led to a quarterly sales shortfall of more than $1 billion relative to Wall Street estimates.
What’s going on? More netbooks are being sold and that’s hurting Microsoft’s pricing power. PC demand isn’t so hot either. The refrain: Microsoft saw soft demand for its premium lines.
For the fourth quarter, Microsoft reported net income of $3.05 billion, or 34 cents a share, on revenue of $13.10 billion, down 17 percent from a year ago. That fourth quarter tally (statement) includes $276 million of Windows 7 revenue deferred. That deferral dinged earnings by 2 cents a share. Meanwhile, there were a few other moving write-offs. Microsoft’s fourth quarter results included $193 million in charges, $108 million in bum investments and $40 million in severance costs. Those items reduced earnings by another 2 cents a share.
Wall Street was expecting earnings of 36 a share on revenue of $14.37 billion. On a conference call, Microsoft CFO Chris Liddell said:
We don’t expect conditions to improve much, but we don’t expect them to worsen either.But the client revenue was the real headline. Microsoft explained it this way:
Client revenue decreased primarily as a result of PC market weakness, especially PCs sold to businesses, and a 13 percentage point decline in the OEM premium mix to 59%. Revenue growth from Windows operating systems was also impacted by a $276 million deferral for the Windows 7 Upgrade Option program. OEM revenue decreased $1.1 billion or 31%, while OEM license units decreased 10%. Based on our estimates, total worldwide PC shipments from all sources declined approximately 5% to 7%, driven by decreased demand in emerging and developed markets.This slide says it all:
To put some perspective on Microsoft’s client revenue, Deutsche Bank analyst Todd Raker was expecting Windows to generate revenue of $3.61 billion, down 17.5 percent from a year ago. Even factoring in the Windows 7 upgrade program Microsoft missed the client revenue mark.
Analysts had become more upbeat about Microsoft’s client revenue following positive PC unit data and Intel’s results. However, when those units are netbooks Microsoft has problems. What’s good for Intel isn’t good for Microsoft these days. In addition, Vista has played out so Microsoft is in limbo until Windows 7 launches.
Liddell said that “business continued to be negatively impacted by weakness in the global PC and server markets.”
A few more key points from Liddell:
As for the outlook, Microsoft only said that its expenses would be $26.6 billion to $26.9 billion for fiscal 2010.
Here’s the breakdown of Microsoft’s results by business unit and my notes:
Odds and ends worth noting:
© 2009 CBS Interactive Inc
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