Microsoft turned in another dismal showing in its fiscal fourth quarter as weakness in the PC and server markets, combined with the effects of netbooks, contributed to quarterly revenue declines in all five of its business segments. For its fiscal fourth quarter ended June 30, Microsoft reported profit of US$3.05 billion, down 29 percent from the year-ago quarter, and earnings of 34 cents per share, a drop of 26 percent. Revenue fell 17 percent during the quarter to US$13.10 billion. The results fell well short of Wall Street analysts' estimates of US$14.37 billion in revenue and 36 cents a share and continued Microsoft's trend of weak quarterly performances. For its fiscal year ended June 30, Microsoft reported revenue of US$58.44 billion, down 3 percent from the previous year. Windows Client revenue dropped 29 percent during the quarter, representing a shortfall of more than US$1 billion from the year-ago quarter. For the year, Client revenue was down 13 percent. CFO Christopher Liddell attributed this to the overall malaise in the PC hardware market and the "substantial weakness" in the business PC market resulting from budget cuts and delayed hardware refresh cycles. This resulted in sales of premium Windows SKUs falling more than 25 percent during the quarter. Netbooks are one area of activity in the sluggish PC market, and Windows unit sales on netbooks grew sequentially for the first time since the September 2008 quarter. That's a positive development for Microsoft even though it receives less money for these versions. However, OEM Premium Mix was just 59 percent during the quarter, compared to 76 percent a year ago when netbooks with Windows first began shipping in volume. This is a sign of the revenue-gnawing impact that netbooks -- and the lower-priced Windows SKUs they ship with -- continue to have on Microsoft's business. Microsoft is believed to charge OEMs between US$20 and US$25 per copy of XP Home on netbooks. Matt Rosoff, an analyst with Directions On Microsoft, expects Microsoft to charge US$20 or US$30 more per unit for Windows 7 on netbooks compared to XP Home. Microsoft is treading a fine line, however, and if Microsoft charges too much it could drive some buyers to Linux-based netbooks, he said. Microsoft's Server and Tools division revenue dropped 6 percent during the quarter but rose 8 percent for the fiscal year. Windows Server unit sales rose during the quarter after falling the previous two quarters, and Liddell chalked that up in part to growing adoption of Microsoft's virtualization portfolio. Revenue from the Microsoft Business Division dropped 13 percent during the quarter and was flat for the year, but the cash cows of SharePoint, Dynamics CRM and Office Communications Server continued to perform well. Dynamics CRM passed the one million customer mark during the quarter, and Microsoft has signed up several customers with more than 200,000 seats for its online SharePoint and Exchange hosted services offerings, according to Liddell. Given the unlikelihood that the PC and server markets will rebound anytime soon, Microsoft appears to be setting its sights for potential improvement on the second half of its fiscal 2010 year. Microsoft will need to see a sustained increase in IT spending before it begins to feel confident in acceleration in the Client and Server and Tools businesses, Liddell said. "Clearly, a lot of businesses have extended their refresh cycle because of overall economics, but they can't do that forever." Investors weren't thrilled with another weak quarterly showing by Microsoft, sending shares down US$1.81 to US$23.75 in Thursday after-hours trading. However, despite the company's struggles, Microsoft shares are still up more than 21 percent for the year. See original article on CRN.com
Issue: 277 | March, 2010