Quote:
Microsoft has reported disappointing results for the April to June quarter, with profits down by almost a third.
Net profit for the period was $3.1bn (£1.9bn), down by 29% from the same period a year earlier. Revenue came in at $13.1bn, down 17% from a year ago.
The results were worse than analysts had been expecting.
The world's largest software maker said it had been affected by weakness in the global personal computer (PC) and server markets.
Cost cutting
In after hours trading, Microsoft shares fell more than 7%, reflecting the market's disappointment with the results.
"It looked like a pretty tough quarter for Microsoft. The top line was very weak," said Toan Tran at Morningstar.
The one bright spot was the company's cost-cutting measures.
"In light of the environment, it was an excellent achievement to deliver over $750m of operational savings compared with the prior year quarter," said Chris Liddell, Microsoft's finance chief.
Microsoft makes most of its profit selling the Windows operating system and business software such as Office.
However, demand has been hit by falling sales of PCs as consumers and businesses trim spending.
Microsoft - which became a public company in 1986 - has been looking at ways of cutting costs.
In January, it said it would cut up to 5,000 jobs over the next 18 months, including 1,400 immediately.
Increasing pressure
To make matters worse, the company is coming under increasing pressure from internet search engine Google, which recently announced a better-than-expected rise in second quarter profits.
Google is developing an operating system for personal computers in a direct challenge to market leader Microsoft and its Windows system.
Microsoft itself is poised to launch its new operating system, Windows 7, this autumn.
Quote:
Microsoft Corporation (NASDAQ: MSFT), a company in the same competitive league as Apple, Inc. (NASDAQ: AAPL), Google, INc. (NASDAQ: GOOG), Yahoo! (NASDAQ: YHOO), and International Business Machines Corp. (NYSE: IBM), posted its Q4 earnings release after the bell on Thursday. As I was writing this paragraph, shares of the software giant were trading down over 6% in the after-hours session. Looks like the market was disappointed.
To be certain, the results weren't great (of course, no one was expecting them to recall the company's growth story of yesteryear, I'm confident about that, let me tell you). Sales were down 17%. Operating income on a dollar basis dropped 30%. And, on a reported basis, Microsoft's per-share profit, calculated out to be 34 cents, declined 26%. On an adjusted basis, adding back 4 cents for a few items, earnings came in at 38 cents per share. According to my earnings preview, that beat estimates by two pennies.
Now, if you read through my earnings preview article, you'll note that I did an earnings trade with Microsoft this week. I was figuring that, with the excitement of the announcement coming up, with the recent price-action characteristics of the shares, and with the general bullish tone of the markets at large, I could make a quick dollar-gain trade. I bought shares for $24.32 a piece on Monday. Thankfully, Microsoft reached my desired price of $25.32 earlier on Thursday and I sold out before the earnings announcement. I knew betting on an after-hours rise was risky, but I still wanted to take the chance; again, it's great that my sell order was triggered and that I lucked out with a profit.
But, is all lost with Microsoft? At the beginning of this piece, I said shares were down 6%. Guess what? They're now down 8% as I type! Wall Street really hates Microsoft at the moment!
Please. If you've got a long-term horizon, don't worry. Microsoft generates a lot of cash. Sure, annual operational cash flow is down this year, but the business still brought in over $19 billion. If you add up the dividends paid out to shareholders and the cost of the repurchased stock, you still don't reach $19 billion. Think about that, my friends.
Microsoft is in for some challenging times. But it has a few good brands -- Bing, Xbox 360, and a little thing known as Windows (also referred to as "operating-system monopoly" in layman's terms). When the recession is gone, Microsoft should prosper.
So, if shares of the company pull back over the next several trading sessions (and they most likely do need to consolidate a bit; if my fellow investors don't believe me, I urge all to engage a study of the chart), I'd probably take a look at them; come on, management beat the analysts, correct? I'd have to believe that this isn't a lack-of-confidence vote so much as it is a profit-taking exercise. Maybe I'll turn out to be wrong, but I remain bullish on Microsoft's potential in the years to come.
