The Independent (UK)
July 20, 2012
Associated Press (AP)
Microsoft posted its first quarterly loss in its 26 years as a public company, as it declared
a struggling online ad business a bust and prepared for one of the biggest product updates in
its history.
The software giant had warned two weeks ago, that it would take a $6.2bn (£3.9bn) charge in the
April-June quarter, because its 2007 purchase of online ad service aQuantive failed to help it
compete with Google. The amount reflected the bulk of the $6.3bn (£4bn) acquisition cost.
The online ad business remains just a tiny part of Microsoft — comprising just 4% of its annual
revenue. Most of the company's sales come from its Office suite of productivity software, Windows
operating system and, increasingly, computer servers.
Upbeat business software and server sales in the quarter helped offset a flat market for personal
computers, which had put a damper on Windows sales. Taken as a whole, the software giant's results
beat analyst expectations. Shares rose 2.4% to $31.39 in after-hours trading following the earnings
announcement.
Including the big write-down on aQuantive, Microsoft booked a $492m (£313m) loss in the fiscal fourth
quarter or 6 cents a share. That compares with earnings of $5.9bn (£3.7bn), or 69 cents, a year ago.
Revenue rose 4 % to $18.06bn (£11.5bn). Excluding the adjustment and the deferral of some revenue
related to its upcoming Windows 8 operating system, earnings came to 73 cents per share. Analysts
polled by FactSet were looking for 62 cents per share of earnings on revenue of $18.15bn. "The
quarter was pretty much in line across major segments of the business," Nomura analyst Rick Sherlund
said.
Microsoft's fortunes are now tied to the October 26 release of Windows 8, the most extreme redesign
of the company's flagship operating system since 1995. Windows 8 will feature a new look and boast
new technology, that will enable the operating system to work on touch-controlled tablet computers,
as well as Microsoft's traditional stronghold of desktop and laptop computers. In conjunction with
Windows 8, Microsoft is planning to release its own tablet, the Surface. A revamped version of Office,
which bundles word processing, spreadsheet and e-mail programmes, is also in the works.
Yesterday's loss was the first for Redmond, Washington-based Microsoft, since the company went public
in March 1986. The $6.2bn charge is a non-cash adjustment, which companies do, when the value of their
assets decline. Firms have to review their assets once a year and the just-ended quarter is Microsoft's
final one for fiscal 2012.
AQuantive was Microsoft's most expensive purchase at the time and was supposed to help it mount a more
serious challenge to Google in online ads. But the online ad division continued to post losses — totaling
more, than $9bn (£5.7bn) since the purchase, not including the charge.
By contrast, Google has widened its lead, thanks in part to its purchase of DoubleClick for $3.2bn (£2bn)
about eight months after the aQuantive deal. Google's search engine, a major vehicle for selling ads, has
remained strong, while Microsoft's Bing search engine saw its market share drop slightly to 26% from 27%
a year ago. That includes searches through Yahoo, which has been using Microsoft's search technology for
nearly two years.
Google earned $2.8bn (£1.7bn) or $8.42 per share during the three months ending in June. That compared
with a net income of $2.5bn or 7.68 per share last year. Revenue climbed 35% from last year to $12.2bn
(£7.7bn).