Microsoft's Tough Third Quarter.
Posted by: Peter Burrows on April 23, 2009
A day after Apple seemed to shrug off the world economic woes with impressive quarterly earnings, Microsoft showed that it’s in no ways immune. While analysts expected revenues of $14.1 billion for the quarter ended March 30, Microsoft delivered just $13.65 billion—a 6% decline from the year before. Earnings per share were $.33, well below the $.39 Wall Street was looking for. Net income, which included $710 million in onetime charges, fell by nearly a third, to $3 billion.
Taken together, the quarterly numbers reflect the scary trends facing the company. Sales of its Windows PC software fell 16%—not just because of falling unit sales, but increased sales of cheaper versions that run on low-cost “netbooks.” (There’s not enough Lauren’s out there just yet, it seems.) But the server and tools business, which sells back-office gear that increasingly resides out on the Internet in data centers, rose from $3.2 billion to $3.4 billion. It’s clear that at a time when customers are watching their pennies, they’re investing less in PCs that formed the basis of the company’s lucrative monopolies—and spending more on geat that’s used in “the cloud”, where the company faces competition from the likes of IBM, Google and now Oracle, should its proposed acquisition of Sun Microsystems go through. It’s safe to say that how people spend money during these tough times is a good indicator of where people are likely to find value with their IT dollars.
One wild-card: Will Microsoft be able to adapt its other goldmine business, Microsoft Office and related business applicaitons, for this cloud-based market. So far so good. This unit, which has been rolling out on-line versions of products such as Microsoft Exchange, held up surprisingly well in the quarter, posting growth from $3.2 billion to $3.5 billion.
Maybe the most striking news is Microsoft’s crisp cost-cutting. Who knew this Midas of the computer industry knew how to scale back so well? In the quarter, administrative costs fell by more than $1 billion, from $2.3 billion to $913 million. And the company completed its first ever general layoff, of 5,000 people. The company did not cut into its R&D budget, however. Spending there rose from $2 billion to $2.2 billion.