Microsoft (MSFT) Posts Mixed Second Quarter Earnings

Microsoft (MSFT: Charts, News) reported earnings last week, narrowly topping analyst estimates for profit but missing on revenue. For its second quarter, Microsoft posted earnings of 76 cents per share, or $6.4 billion, on revenue of $21.46 billion.

This was a 2.6% decline in EPS and a 3% gain in revenue from the prior year quarter. Analysts had projected the company to earn 75 cents per share on revenue of $21.5 billion. Investors had feared the worst, following dismal earnings from its Wintel ecosystem partners - Intel (INTC: Charts, News), AMD (AMD: Charts, News), Dell (DELL: Charts, News) and Hewlett Packard (HPQ: Charts, News). Daily Chart
Microsoft's Windows division posted adjusted revenue growth of 11% after the release of Windows 8 in late October. Profit rose 14%. Analysts had been watching this figure carefully, since the Windows operating system is the company's primary source of revenue. Windows 8 is a major shift from Windows 7, opting for a touch-screen optimized tiled screen desktop in favor of its traditional taskbar and desktop shortcut based system. The new operating system has been met with mixed reviews, with several reviewers criticizing its steep learning curve. Microsoft's Servers and Tools segment posted a 9.5% increase in revenue and 8.8% growth in profit. This area of growth - known as the enterprise software business - is a key area of growth as desktops and laptops are increasingly being replaced by smartphones, tablets and hybrid mobile devices. Microsoft's business unit, which produces its flagship Microsoft Office software, posted a disappointing10% plunge in revenue while profits slid 15%. This reflects poorly on Office 365, its cloud-based answer to Google's (GOOG: Charts, News) popular Docs program. Business users are increasingly using Google Docs and Sun Microsystems' Open Office, which are both free alternatives to Microsoft's office productivity software. Microsoft's entertainment division, which consists of the XBOX 360 console, video game software business, and peripheral devices, posted a revenue decline of 11%, while profit rose 15%. This was caused by a continuous decline in video game sales throughout 2012. Gamers have also stopped purchasing XBOX 360 consoles, which are now nearly eight years old, in anticipation of the next generation XBOX 720. Revenue from Microsoft's online services division, which includes its Live services and Bing search engine, posted an 11% gain in revenue. Bing, once considered a hopeful contender to Google's crown, recently reported a 4.2% market share globally and a 7.3% market share in the United States. It managed to push past Yahoo to claim second place in both the global and American markets, but is still dwarfed by Google. Google currently controls 88.8% of the global market and its 86.3% of the United States market. Investors were fairly indifferent to Microsoft' earnings, but shares rallied slightly into the end of last week. The stock currently trades at 8.8 times forward earnings with a 5-year PEG ratio of 1.17. It pays a quarterly dividend of 23 cents per share, a 3.3% yield at current prices. Other News About MSFT Xbox 720 Specs: Release Rumors Is this the next generation console gamers have been waiting for? Microsoft Corporation Narrowly Beats EPS Expectations Microsoft tops earnings expectations but misses on revenue. Other Stocks in the News Should Activision Blizzard Aspire to be a Movie Studio? Is Activision's business model top-heavy and risky? Is Qihoo 360 the Next Baidu? Is this underdog Chinese stock the next Baidu? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Jan 28, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2020. Content published with author's permission.

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