Microsoft profit dips ahead of Office revamp

SEATTLE Thu Jan 24, 2013 8:35pm EST

1 of 2. Microsoft CEO Steve Ballmer speaks in front of Microsoft products at the Qualcomm pre-show keynote at the Consumer Electronics Show (CES) in Las Vegas in this January 7, 2013, file photo.

Credit: Reuters/Rick Wilking/Files

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SEATTLE (Reuters) - Microsoft Corp's quarterly profit edged lower as Office software sales slowed ahead of a new launch, offsetting a solid but unspectacular start for its Windows 8 operating system and sending the company's shares down 1.4 percent.

The results mark a stark change from the 1990s, when Microsoft was the unchallenged king of computing and the release of a new Windows operating system would supercharge sales, generate excitement and generally boost its stock.

None of that appears to be true now, as Microsoft has been overtaken by Apple Inc and Google Inc in the rush toward mobile computing, while sales of traditional desktop computers are in decline.

"There's still no sign that Windows 8 is a gangbuster," said Andrew Bartels, an analyst at Forrester Research. "Compared to prior periods, where you saw a big increase when a new one came out, you're not seeing that."

Profit at the world's largest software company slid to $6.4 billion, or 76 cents per share, in the fiscal second quarter, from $6.6 billion, or 78 cents per share, in the year-ago quarter.

Wall Street had expected 75 cents per share, on average, according to Thomson Reuters I/B/E/S.

Overall sales rose 3 percent to $21.5 billion, Microsoft said on Thursday, in line with analysts' estimates.

The biggest factor weighing on Microsoft was a 10 percent decline in sales at its Office unit to $5.7 billion, which took into account the loss of deferred revenue relating to discounted upgrades to the new version of the software, expected shortly.

"It's a pause before a product launch, which is typical," said Josh Olson, an analyst at Edward Jones.


Windows sales jumped 24 percent to $5.9 billion, slightly ahead of analysts' average expectations, which had been gradually lowered over the last few months. That also included some deferred revenue relating to discounted upgrades.

Microsoft said it has sold more than 60 million Windows 8 licenses since its late-October launch, an unexceptional start for a product which has not gripped the public's imagination in the way of Apple's iPad.

The company already announced 60 million Windows 8 sales two weeks ago, broadly in line with Windows 7 sales three years before.

"Windows 8 continues to have an uphill battle in convincing investors this is going to be the key to the growth story for Microsoft," said Daniel Ives, an analyst at FBR Capital Markets. "It continues to be a major prove-me product cycle."

Microsoft did not detail sales of its new Surface tablet - a direct competitor to the iPad - although chief financial officer Peter Klein said the company was expanding production and distribution.

Windows executives suggest that Windows will win more people over when new touch-screen devices start hitting the shelves in coming months.

"Demand is stronger than supply across a number of key device types, whether Windows tablets, convertibles, or all-in-ones," Tami Reller, chief financial officer of Microsoft's Windows unit, told Reuters earlier this month. "Most of the opportunity is still ahead of us."

Analysts seem prepared to give Microsoft more time to prove its point.

"It's been disruptive but the PC market is far from dead," said Colin Gillis, an analyst at BGC Financial. "Even if they have minimal success with Surface, they don't need much to move the needle."

Microsoft shares have fallen 2 percent since Windows 8 was launched on October 26, compared to a 5 percent gain in the tech-heavy Nasdaq composite index. They fell to $27.06 in after-hours trading, after closing at $27.23 on Nasdaq.

(Additional reporting by Jennifer Saba; Editing by Richard Chang and Bob Burgdorfer)

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Comments (3)
UncleNed-222 wrote:
Considering what they did to Windows with the advent of Windows 8, I hate to consider how they’ll screw up Office.

Microsoft could make up that lost revenue if they offer paid extended support for Window XP & 7 – two relatively useable products they already have – for another few years- to give it’s entrenched users (like myself) plenty of extra time to convert to Mac or maybe a more evolved Chrome or something… [a few more years?? YES! 'Cause I'm an old, slow, set in my ways, non-tech sort of a guy -you got a problem with that???] I was seriously considering buying a new Windows desktop – until Windows 8 came out. But I just hate buyers remorse. And windows products don’t just have a way to connect your old and new desktops to each other and click “TRANSFER FILES, SETTINGS, ARCHIVED EMAILS AND EVERYTHING ELSE”. No, they introduce little pleasantries like replacing outlook express with “LIVE MAIL” – each new version of Windows presenting us new file formats for archived emails and new procedures for transferring email signature files. And with XP, they made searching for your own onboard files an extended, hit and miss ordeal, compounding the agony with Windows 7′s still more awkward so-called search feature.

Looking cautiously towards a Mac or Chrome future…

Jan 24, 2013 8:33pm EST  --  Report as abuse
AsokAsok wrote:
From CNNMoney: “Windows sales rose 24% to $5.8 billion in the quarter that ended Dec. 31. Microsoft unveiled its years-in-the-making Windows overhaul on Oct. 26. But [the Windows 8 launch] pales in comparison to prior launches of the operating system: Windows sales soared 76% during the quarter that Windows 7 launched, and rose by 65% when Windows Vista debuted.”

Well, the Windows 8 disaster that myself and ten thousand other analysts and testers have been predicting for over six months has now been confirmed. Windows 8 is doing only 1/3 as good compared to Windows 7 and Vista came out. And guess what? PC sales as a whole are NOT 3 times worse as in those two previous cases, so it’s completely bogus to be claiming that a slump in PC sales is to blame. And besides, hasn’t Microsoft and all of their “partners” been claiming that Windows 8 was just the thing to turn that PC slump around? Kind of ironic that now they’re trying to blame the PC slump for bad Windows 8 performance, don’t you think?

Jan 24, 2013 11:06pm EST  --  Report as abuse
wthcares wrote:
UncleNed-222, don’t waste anymore time, I switched to Macs about 8 mos. after my 1st iPhone 3GS and haven’t looked back. You want all your gadgets to work together seamlessly? Apple wins hands down, Ms and Android users just don’t get it! Ok so my employer is still entrenched with Mickeysoft, so when I need to log in from home I will run XP under Vmware Fusion. Btw, those cloud versions of Ms Office… they’re horrible, everybody at work hates them.

Jan 25, 2013 12:36pm EST  --  Report as abuse
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