Microsoft (MSFT) Misses Revenue Forecasts By Nearly a Billion Dollars

Shares of Microsoft (MSFT) plunged last week, after the Redmond, Washington-based company reported fourth quarter earnings that completely missed analyst estimates. The company reported earnings of $0.59 per share, or $4.7 billion, a major improvement from the loss of $492 million it reported in the prior year quarter. Revenue rose 10.1% to $19.9 billion. Even though both earnings and revenue were significantly improved from the prior year quarter, they still missed the consensus estimate of $0.75 per share on revenue of $20.73 billion.

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The biggest black mark on Microsoft's earnings report is its glaring revenue miss of nearly a billion dollars, which the company blamed on a massive $900 million charge on unsold Microsoft Surface RT tablets. The less popular variant of the already unpopular Microsoft Surface ran on an ARM processor and was installed with a special, mobile-optimized version of Windows 8 known as RT. In theory, RT was intended to be the ideal, low-powered variant of Windows 8 that was intended to spread across the tablet market. In practice, it was a clumsy OS that didn't fit anywhere with Windows 8 or Windows Phone 8. Moreover, Windows 8, Windows Phone 8 and Windows RT run on three different architectures, meaning that software designed on one platform was not compatible with the other two. In particular, RT was completely left out of the loop, and could not run traditional Windows x86 software at all, and could only run apps downloaded off the Windows App Store, which is sparsely populated compared to Google's (GOOG) Play Store and Apple's (AAPL) App Store. CEO Steve Ballmer attempted to address this glaring problem by reorganizing the company's core divisions and announcing that the three OS architectures will eventually be unified as a single one, but it may be too little, too late for the Windows division, which reported 6% revenue growth during the quarter. On top of that $900 billion writedown, Microsoft also took a previously deferred $782 million charge related to Microsoft Office. During the quarter, the company's Business Division reported the highest revenue growth, at $7.2 billion (up from $6.3 billion) and the highest profit, at $4.87 billion (up from $4.1 billion). Its Server and Tools business also edged up slightly, while it continued reporting losses at its Entertainment & Devices and Online Businesses divisions. However, the losses at Entertainment & Devices, which includes its upcoming Xbox One console, were narrower than before, rising from a loss of $252 million to $110 million, as revenue climbed from $1.78 billion to $1.92 billion. In addition, Bing's U.S. search market share rose from 15.6% to 17.9%, and could climb higher once Apple releases iOS 7, which features Bing as its default Siri search engine. Microsoft has a murky future ahead. It has yet to convince PC users that Windows 8 is a viable replacement for Windows XP or 7, which are both still supported, and it is often blamed for causing a precipitous decline in PC shipments, which declined another 11% during the second quarter of the year. Much of the company's future success depends on the adoption of Windows 8.1, Windows Phone 8 and the Xbox One, which could help revenue recover over the next few quarters. Other News About MSFT Why Investors Still Believe in Microsoft Despite its missteps, some investors still believe Microsoft can bounce back. Microsoft Takes $900M Charge on Surface RT Tablets Microsoft's ill-fated Surface RT causes the company to lose nearly a billion dollars. Other Stocks in the News Three Future Winners and One Major Loser in the HCV Wars Which biotech could win the hepatitis C wars? Is This Trio of Fading Accessory Makers Doomed? Why piggybacking off the success of others will only get a company so far. 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 Jul 23, 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.

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