Weak PC sales batter Microsoft's profits
Posted on 19 Oct 2012 at 08:50
Microsoft's quarterly profit fell a greater-than-expected 22%, as sales of Windows PCs dipped.
The sharp decline surprised investors, who had underestimated the effect of weak PC sales, sending Microsoft's shares down 1.3% in after-hours trading.
"To us it seems like the macro conditions certainly deteriorated and no tech company will be immune to it," said Trip Chowdhry, analyst at Global Equities Research.
There's demand for compelling devices and a connected set of cloud experiences. That's what Windows 8 is all about
Earlier Google reported sharply lower profit amid slowing advertising, following downbeat reports from Intel and IBM this week.
Sales of PCs are expected to fall this year for the first time since 2001, according to research firm IHS, due to the weak economy and inability of the latest crop of lightweight laptops to compete with Apple's iPad.
Microsoft is betting the release of touch-friendly Windows 8 will rev up sales of PCs, laptops and Windows-compatible tablets as soon as it launches next week, and break Microsoft's heavy reliance on PC sales for profit.
"I don't control the macro-environment, but there's a huge opportunity in the explosion of devices," Microsoft Chief Financial Officer Peter Klein said in an interview. "There's demand for compelling devices and a connected set of cloud experiences. That's what Windows 8 is all about."
Microsoft said fiscal first quarter profit fell to $4.47 billion, from $5.74 billion in the year-ago quarter.
Sales fell 8% to $16.01 billion, largely caused by the dip in demand for PCs running Windows, as consumers held off new purchases in the tight economy or opted to buy tablet devices instead.
The revenue decline was exaggerated by Microsoft's deferral of some $1.36 billion in revenue, chiefly from its Windows unit, which it will regain next quarter after Windows 8 is launched.
Analysts, anticipating the dip in PC sales and accounting for the deferred revenue, had called for sales of $16.4 billion.
On the positive side for Microsoft, its fast-growing server and tools business posted a 12% jump in operating profit to $1.75 billion. Its perennially money-losing online services unit - containing the Bing search engine and MSN portal - narrowed its quarterly operating loss by 29% to $364 million, as it increased its share of the search advertising market and cut costs.
"Investors were not expecting a home run. All expectations are on the launch of Windows 8 and the entrance into the tablet market," said Daniel Ives, analyst at FBR Capital Markets. "In light of the environment, the macro and PC situation, these are respectable numbers."
There are no guarantees deferrals will be paid
"The revenue decline was exaggerated by Microsoft's deferral of some $1.36 billion in revenue, chiefly from its Windows unit, which it WILL regain next quarter after Windows 8 is launched."
The largest pat of this deferral relates to owners of Windows 7 machines who MS is hoping will pay the $15 upgrade price to get Windows 8. There is no guarantee users will do this; historically users stay with the older OSs for a long time, and with W8 being such a departure from the known I don't anticipate conversion rates for W7 to W8 will be as high as for previous releases. That puts some doubt on the size of the deferrals - yes, they are right to defer the money, but it may never be received.
By SwissMac on 19 Oct 2012
Karma works after all.
Microsoft shun the PC to push the XBRICK.
Gaming developers are encouraged to concentrate on consoles and multi-platform (sloppy ports).
Gaming is held back on PC by limited console hardware.
People then have no motive to upgrade & replace hardware.
Microsoft can't sell Windows to people if they are not buying new hardware.
Windows 8 has some nice features, but Metro is not one of them and most people will view Windows 8 with the same "high regard" they gave Vista *spit*.
And as Windows 7 is more than good enough, people will happily wait a long time for Windows 8 to prove it isn't a dud before migrating.
Microsoft clearly haven't learned to ask people what they want, they just decide for themselves. So like those awful socks from your distant aunt, Windows 8 may well go in dark drawer with Vista and Millennium Edition.
With "surface" MS have just launched an overpriced tablet just in time to be undersold by the Amazon Kindle. The whole direction of the Microsoft corporation smacks of an organisation with its head in the sand.
By cheysuli on 19 Oct 2012
Why to people always bang on about Vista and ME? They weren't that bad. ME just wasn't much of an improvement over Win98SE but at least it did give us System Restore. Vista got bad press mainly because its hardware requirements were ahead of what most PCs could support at the time, and because of a lot scare stories about DRM that actually never came to pass. Put Vista on modern hardware (ie any multi core PC of the last 5 years) and it runs pretty well - Windows 7 is only Vista Mk2 after all.
By rjp2000 on 19 Oct 2012
I always quite liked Windows ME
But it suffered from being overshadowed by the vastly more popular XP.
As for Windows 8, I've now fully migrated to Windows 7 and feel no urge to upgrade any time soon.
By Alfresco on 19 Oct 2012
Where Vista and Windows 7 may share code base but the Windows 7 user experience is far user, and over time. I bought. Well specced Dell PC with Vista preloaded. It got slower and slower as time when by. Not so Windows 7, which I upgraded to. Windows 7 may e Vista mark 2 in the eyes of some, but works so much better that it doesn't feel at all like Vista to me.
As for Windows 8, I almost can't remember feeling such apathy for a Windows release.
@cheysuli while I agree with you that Windows 7 is good enough that many may not budge from it for Windows 8, I'm not sure I agree with the while thing about a company positioning their strategy around asking customers what they want. Nobody saw the sense in the seemingly oversized smartphone that is the ipad (including me) until Apple just went ahead and did it. And suddenly from nowhere we have a world leading product and a new market.
I think its simply that Microsoft are more concerned about the size of their bottom line than the zen user experience. They are now reacting...scrambling...copying...because they are seeing shrinking revenues and for no other reason.
People thought Jobs' obsessive and insane expire to make products that are beautiful inside and out, and yet are as simple and intuitive to use as they are striking, was a thorn in the side of big business. But I even with his death fading into distant memory I find myself admiring him more and more.
By alvin on 20 Oct 2012
Had you downloaded a pukka Microsoft OEM Vista installation DVD and used it to vape your Dell Vista, with its associated crapware, you would have been amazed at how well it would have run, and saved yourself the cost of the Win 7 upgrade. Win 7 is good, I use it myself as I do Vista. I find that providing both are properly set-up, then they both run well. My main PC has been running Vista Ultimate for at least 3 years and its still running very well inspite of me taking liberties and installing all sorts of trial software on it ;-)
By rjp2000 on 20 Oct 2012
Swiss Mac's back.
Meanwhile, always find it bizarre when appleites accuse microsoft of just doing what they want and foisting the result on their customers whether they like ot or not. Hasn't this been the apple way since, well as long as I can recall.
By nickallison on 20 Oct 2012
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