Microsoft Earnings: Redmond Pays the Cost of Cool
Commenting on earnings only a few hours after they come out (we're writing
this on Thursday afternoon, FYI) is a bit like
reading
the CliffsNotes for a great novel and then doing a book report. Earnings
reports from big companies like Microsoft are absolute monsters (seriously,
check
this thing out), and they're
full
of subtle nuances that press releases and a few wire-service stories can't
fully capture.
But for our purposes today, the CliffsNotes of Microsoft's earnings announcement
will be just fine. And the major character in this story is the forlorn Xbox,
the infamous video game console that Redmond now has to fix…to the tune
of more
than a billion dollars. Microsoft actually ended
up doing fine -- although not spectacularly well -- in its fourth fiscal
quarter despite the problems with the Xbox.
And its year-end numbers -- remember, Microsoft's fiscal year runs from July
through June, not that you didn't know that -- were fairly staggering: For the
first time, Redmond earned more than $50 billion in a single fiscal year. So
those Xbox repairs cost about one-fiftieth of the company's annual haul. Just
to put things in perspective.
Quarterly numbers seemed to be about what Wall Street expected, so it's hard
to say how this earnings report will affect Microsoft's stock price, which,
despite about a 6 percent rise this fiscal year, still trailed Oracle, Google,
Apple and the S&P 500 in terms of performance. The fourth quarter's final
tally could have been better, of course. For instance, the Xbox repairs showed
up as a one-time expense, but it fairly shaved the company's earnings-per-share
figure.
The Xbox debacle is all part of Microsoft's ongoing -- and, thus far, mostly
unsuccessful -- attempt
to be cool. The console hasn't yet made any money and has now surely cost
more than Redmond ever expected. Losses for the company's Entertainment and
Devices division were up 183 percent in 2007 compared with 2006. Microsoft's
Online Services Business division -- think MSN and almost anything called "Live"
-- saw losses expand, too.
But that's the bad news, and, as you might expect, there's lots of good news.
Vista
seems to be bumping along, sales-wise, mainly because -- as we see it --
people who buy new computers get it by default, not because anybody seems to
particularly like Vista. Still, while it might be a critical failure and a dud
in the enterprise channel thus far, it's raking in dollars for Redmond. And
Dynamics, Microsoft's enterprise software offering, showed up as a 24 percent
increase in customer billings in the company's fourth fiscal quarter.
So the story of Microsoft's earnings has a happy -- if not massively, spectacularly
happy -- ending, despite a few plot twists. Which leads us to wonder (again),
actually -- why does Microsoft try so hard to be cool? How much more money will
it cost Redmond before the company either turns its fortunes around with Xbox
and search or just stops pumping so much into both efforts? In Microsoft's case,
we suppose, money is no object.
What's your take on Microsoft's earnings? Are you pleased with the direction
in which the company is moving? Talk to me at [email protected].
Incidentally, there were lots of earnings reports this week, including numbers
from Intel and Google,
the latter of which missed Wall Street's expectations and took a bit of a hit.
Oh, and while we're adding footnotes, guess what's back? The Microsoft-to-buy-Yahoo
rumor!
We'll get back to running the loads and loads of reader e-mails next week,
so keep them pouring in to [email protected],
and thanks to all of you who have taken time to write.
Posted by Lee Pender on July 20, 2007