'Soft PC Sales' Bring Down Microsoft Q4 Earnings

Microsoft's fiscal fourth quarter report reflected mostly positive news across divisions, although the Windows and Online Services divisions slipped again.

Overall revenue for Microsoft's Q4, which ended on June 30, was $18.1 billion. That's a relatively modest increase compared with the $17.4 billion in revenue from last year's Q4 report. Year over year, Microsoft took in $73.7 billion, up 4% compared with the $69.9 billion of Q4 2011.

Earnings per share was a negative $0.06 for Q4 per Microsoft's GAAP reporting. That result is quite an upset compared with the fiscal-year 2011 positive earnings per share of $0.69. However, Microsoft played up its non-GAAP accounting in this report as an explanation, pointing to the effects of deferred income associated with its Windows upgrade offer, which is a consumer incentive program designed to protect current PC sales as Windows 8 starts to emerge. According to Microsoft's adjusted non-GAAP calculations, the earnings per share for Q4 was $0.73. Market expectations were at $0.62 earning per share, according to The Associated Press.

Online Services: Another factor hitting Microsoft this quarter was a goodwill impairment charge of $6.2 billion in its Online Services Division. That charge mostly represents a write-down associated with Microsoft's 2007 purchase of aQuantive Inc., a digital advertising company. While operating expenses associated with Microsoft's Bing search-advertising business have typically been a drag on the company's revenues, this quarter, excluding the goodwill impairment charge, Microsoft's operating loss decreased 36%. Microsoft reported an increase in Online Services Division revenue to $55 million, up 8% for Q4.

Windows: The Windows and Windows Live Division faltered. Microsoft reported revenue of $2.4 billion for the quarter, down from $2.9 billion in last year's Q4 result. The rationale for the $500 million slip was the Windows upgrade offer. In addition, Microsoft indicated that the PC market was generally flat during the quarter. Business PC sales were up 1%, but consumer PC sales decreased 2%.

Entertainment and Devices: While the Entertainment and Devices Division produced a revenue increase of $292 million in Q4, Microsoft also reported an operating income decrease of $276 million associated with its Nokia deal payments and Skype acquisition. The positive results were attributed to Skype revenue, but the details weren't broken down in Microsoft's report. Xbox 360 gaming console shipments shrank in Q4 to 1.1 million units, compared with 1.7 million units in the last Q4 period. However, Xbox Live membership was up 15% year over year. As with previously released Microsoft quarterly reports, no Windows Phone financial details were disclosed. Windows Phone adoption has so far been languishing in the single-digit adoption range, although the IDC analyst and consulting firm has predicted greater success by 2016.

Leading Divisions: The Microsoft Business Division brought in the most revenue during Q4 at $6.3 billion, up 7% quarter over quarter. Microsoft pointed to Office 2010 sales and Microsoft Dynamics revenues as contributing to the increase. Dynamics revenue was up 7% during the quarter. Microsoft reported that Business Division revenue from consumers was down 4% due to "soft PC sales in developed markets."

The Server and Tools Division was next in bringing in the most revenue for Microsoft, amounting to $5.1 billion in Q4, up 13% quarter over quarter. Licensing renewals drove the division. SQL Server and System Center provided the most revenue growth, along with payments to Microsoft's consulting services.

To get Microsoft's Q4 report and listen to an on-demand Webcast of the earnings, see Microsoft's investor relations page here.

About the Author

Kurt Mackie is senior news producer for 1105 Media's Converge360 group.


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