Microsoft...is it the first of many more losses?

MS Office softens historic fall as Microsoft posts quarterly loss

• by: Nathalie Tadena
• From: Dow Jones Newswires
• July 20, 2012 7:15AM

MICROSOFT swung to a fiscal fourth-quarter loss - its first in 26 years as a public company - as the software giant booked a hefty writedown on its online services division and deferred revenue related to its Windows 8 upgrade promotion. 

Microsoft's continued strength in sales of its Office suite of products to corporate customers has helped cushion the company from the impact of slumping personal computer sales. The company earlier this week gave a preview of its new Office software that embraces cloud computing and mobile devices in an effort to revitalise its core software offering for global business.

Microsoft needs demand for Office to remain robust as it transitions customers to cloud services and its forthcoming Windows 8 operating system that will run on both traditional PCs and tablet computers. Windows is the software powering most of the world's PCs. Windows 8 is widely seen as Microsoft's best chance at competing with machines running Google's Android operating system and Apple's iPad. The new Microsoft system will go on sale October 26.

To sustain sales of its Windows 7 operating system through October, the company has said buyers of selected versions of Windows 7 through the end of January 2013 will be able to upgrade to a version of Windows 8 Pro at a discount.

For the quarter ended June 30, Microsoft reported a loss of $US492 million ($471.7m), or US6 cents a share, compared with a year-earlier profit of $US5.87 billion, or US69c a share.

The latest period's results included a $US6.19bn goodwill writedown in its online services division, connected to its 2007 acquisition of online-advertising agency aQuantive for $US6.3bn. It also included the deferral of $US540m of revenue related to the Windows Upgrade Offer.

Excluding the impairment and deferred revenue, adjusted earnings were US73c a share. Revenue increased 4 per cent to $US18.06bn.Analysts polled by Thomson Reuters most recently projected earnings of US62c a share and revenue of $US18.13bn. Total operating expenses were up 60 per cent. Microsoft's Windows and Windows Live Division saw revenue decrease 13 per cent, including the impact of the deferred revenue, as profit fell 18 per cent.

Revenue for the company's servers and tools products, which form the backbone of enterprise networks and private clouds, jumped 13 per cent while the segment's profit improved 24 per cent. At the business division, which earns most of its sales from Microsoft Office, sales were up 7.1. per cent as profit advanced 9 per cent. Recent quarters have seen strong demand for the company's cloud-based Office 365 suite of office utilities and collaboration tools.

Sales at the entertainment-and-devices business, which houses the Xbox video game console, jumped 20 per cent. In online services, revenue was up 8.1 per cent. Microsoft has invested heavily in the unit, launching a splashy advertising blitz last year to promote Bing, which is the second-most-popular search engine in the U.S. behind Google, according to comScore.

Microsoft shares rose 1.9 per cent to $US31.24 after hours. Through the close, Microsoft's stock is up 18 per cent since the start of the year.

                     _______________________   |   _____________________