Microsoft earnings don't wow

Sales of Windows were strong last quarter, but weaker than expected results from online advertising and the Office units led Microsoft earnings to come in a penny per share below analysts estimates. Microsoft also issued an outlook for the current quarter that fell short of what some analysts were projecting.

For the three months ended June 30, Microsoft said it earned $4.3 billion, or 36 cents per share, on revenue of $15.84 billion for the fiscal fourth quarter ended June 30. That was within the range Microsoft forecast in April, although revenue was slightly higher than the $15.7 billion First Call estimate and per-share earnings were a penny lower than First Call projections.

"We're between our high and low guidance," Microsoft chief accounting officer Frank Brod told CNET News. He pointed to particularly strong results in the Windows business, where sales were up 15 percent from a year earlier, ahead of Microsoft's forecast of 7 percent to 11 percent growth. Gains in piracy, particularly in China, helped that. He also noted that Microsoft has now sold 180 million licenses of Windows Vista.

"Our online services was off slightly from what our expectations as well as our business division was down slightly," Brod said.

For the current quarter, Microsoft said it expects per share earnings of 47 cents or 48 cents, on revenue of $14.7 billion to $14.9 billion. Analysts were targeting $15.0 billion in revenue and per-share earnings of 49 cents, according to First Call. The company also lowered its forecast for full-year earnings by 1 penny per share, with its new forecast calling for earnings of $2.12 to $2.18 per share.

Brod noted that the company does plan to continue investing in its online business as well as boosting the amount of money it spends marketing Windows.

"Embedded in our guidance for next year is a significant investment in the marketing program around Windows Vista.

Microsoft shares dipped in after-hours trading, changing hands recently at $26.09, down $1.43, or more than 5 percent, according to Google Finance.

Brod said that Microsoft's bookings pipeline remained strong, although he said Microsoft has seen an expansion of its sales cycle--the amount of time it takes to close deals--as companies spend longer weighing purchases.

"We're seeing the sales process takes a little longer than it has in the past," Brod said. "A lot more debate goes on."

Brod said that IT spending is stronger in emerging markets than in mature ones, but added Microsoft has "not seen a whole lot of pull back in our customer bases."

The earnings report comes amid continued attention over whether Microsoft will choose to seal a deal in the online advertising arena. In addition to its seemingly endless on-again, off-again moves with Yahoo, Microsoft reportedly met Wednesday with Time Warner to talk about its AOL unit.

[Vegaman_Dan]

Total failure. Redo from start.

[Penguinisto]

Redo... Vista? I agree. Microsoft? Well, I think you sarcastically stumbled on something that can save 'em in the long run... re-tool both OS and internal business strategies to adapt to the world they now live in.

[Perry_Clease]

Redo at least Vista. For as much time as they put into the program it should have been a lot better.

[Vegaman_Dan]

Something people might be overlooking is that perhaps Vista is *meant* to be the filler between XP and Win 7. The news is full of stories about businesses waiting for Win 7 and will jump to that directly. That could be the entire point. Get far enough away from the legacy XP to jump to a new starting point.

Or not. NDA's won't let the folks who know the real plans to say what's going on.

[Penguinisto]

Actually, Vista was meant to be the end-all be-all to succeed XP. WinFS stands out among the many wondrous things that were promised... but never made it.

Also, MSFT has already said that Windows 7 would contain nothing more than an 'improved' Vista. The NT core is already overstressed, as evidenced by Vista's horrendous hardware requirements and its bloat.

I think that Windows 7 will (if MSFT sticks with their plans) likely be an even bigger disappointment.

Also, companies not buying Vista are actively considering alternatives to replace their by-now 7-year-old operating systems... XP will be 8-10 years old by the time Windows 7 comes out. That's a long time, even for the vast majority of businesses.

[Penguinisto]

Seems that the 800-lb gorilla is starting to stumble.

Meanwhile, they can't blame the market in general, either - Intel is making record profits and performed well above expectations. Apple is making record profit and growth. Cisco, Oracle, IBM... pretty much the majority of large tech corps are doing very well.

...and this is in spite of the Microsoft Tax that consumers are still pretty much stuck with paying towards OEMs.

[Vegaman_Dan]

Microsoft Tax? Wow, you're smoking something pretty good there, sir. Is that a Federal, State, City, or other tax? What agency passed that? Can I deduct it from my income taxes? Or are you just making stuff up? Please- I would like to see your evidence of this tax. OEM's do not appear to be charging any Microsoft Tax that I can find. I would like to find this tax you mention. I really would.

Now then if you are just calling the cost of the OS being included on a new PC sale by the OEM's, then you can't call that a tax. But by your same logic, keep in mind that you will also now need to mention the Apple Tax to be fair.

[Penguinisto]

Pedantic, ain't ye?

You did miss something: Yes Apple includes the price of OSX in every Mac sale (some obscenely tiny sum), but last I checked, Dell and HP weren't owned by Microsoft... or did you forget that?

[skillingssucks]

Oh no, what is Kwasiowusu going to do now; I mean it's going to be a little harder to ***** for Microsoft after news like this.

[fdg008]

ZOMG! You mean MSFT only made $60 billion USD in FY2008? That's fracking terrible! It's all over, they should just shut down now and quit. I mean if you are clearing $4 billion USD a quarter, then bankruptcy is right around the corner. Put a fork in it - with 8.5% marketshare for Apple and 1% marketshare for Linux, MSFT is toast.

[skillingssucks]

You're a moron if you think the Linux market share is 1 percent. There's more to computing than just PC's.

[Penguinisto]

Doesn't matter how much money they pulled in WRT absolute dollars... it's how much profit they've earned, and profits from all but one of their core products are slipping below industry growth... many are actually losing money.

[Philstera]

So double digit growth for a company with now over $60 billion dollars in annual turnover and all this when the country is in recession and all you can say is MS doesnt wow.

Your stories or blogs are pathetic and show no grasp of a fair and balanced approach to reporting the facts.

[barryblo]

I think I have to agree with the others somewhat. Microsoft may not have "wowed" considering the state of the economy, but there are still making more money than most companies will ever see. And the article ignores many of the positive notes in the earnings call.

You can read the entire transcript for the earnings call at Seeking Alpha by clicking below:

http://seekingalpha.com/article/85614-microsoft-f4q08-qtr-end-6-30-08-earnings-call-transcript?source=MSFT

[Penguinisto]

Every company will spin "positive notes" into an earnings call. It's basic PR. Also, it doesn't matter how many absolute dollars they bring in if they're pumping out most of it as soon as they see it on expenses leaving little per-share profit for the real owners of the corp... the shareholders.

[fdg008]

RE: Linux market-share... I do think I am a moron. Thanks for pointing that out for me.

http://marketshare.hitslink.com/report.aspx?qprid=11

My bad... consumer market share for Linux is actually 0.8% not 1% Linux market share is no undoubtedly larger due to servers and embedded - fair enough. No one has numbers on embedded Linux, nor are they number for embedded WinCE or other products. I am not stepping the steamy Unix/WinServer pile, but there is strong competition between the *nix folks and MSFT (Apple for the Enterprise?) But Linux for the desktop and end-user has been a bust so far.

RE: "Profits earned" & "Absolute dollars" - like I said - only a 43% increase in Q4 profits and only $60 billion in revenue.. absolutely trivial numbers.

RE: "many are actually losing money" - how is this new? This has been true for years, no?

I got to go take my lumps for my indulgences in GOOGL now... Adios...