Analysts had expected revenue of $16.42 billion, and earnings per share of $0.56. The company’s stock gyrated at the start of after-hours trading, but has now begun to decline. Update: After losing a little more than a percent, Microsoft appears to have stabilized. Investors aren’t enthused by its quarterly report, but are also not too worried.
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In normal trading, the company’s stock was mixed, losing some steam towards the end of the day. The market for technology stocks was not exactly favorable following Google’s disappointing – and premature – earnings report.
This is the final quarter for Microsoft before the company will release a set of new products – Windows 8, Windows Phone 8, Surface, etc – that are at the forefront of its transition from pure software company, to one that is both a service and device provider.
Windows revenue was exceptionally weak in the quarter: “The Windows & Windows Live Division posted revenue of $3.24 billion, a 33% decrease from the prior year period.” This is not particularly surprising, given that Windows 8 is just around the corner. That fact likely led to consumers holding off from purchasing a new computer, and may have cut into normal retail sales of Windows 7, a product that has been a revenue driver for Microsoft for some time.
On the back of rising revenue per search, Microsoft’s Online Services Division managed to grow 9% during the quarter, when compared to the same year-ago period. Team Xbox and its division partners declined by 1%. Rounding up the list, Servers and Tools was up 8%, while the Office division declined by 2%.
This quarter is roughly a wash for the company. Its performance is not devastatingly bad, and given that Microsoft is set to release such a set of new products in about 8 minutes, its performance of the last three months is almost irrelevant What is next in line matters far more than these past 90 days.
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What follow is Microsoft’s earnings release [Charts excised for formatting]:
REDMOND, Wash. — Oct. 18, 2012 — Microsoft Corp. today announced quarterly revenue of $16.01 billion for the quarter ended Sept. 30, 2012. Operating income, net income, and diluted earnings per share for the quarter were $5.31 billion, $4.47 billion, and $0.53 per share.
These financial results reflect the deferral of $1.36 billion of revenue and $0.13 of diluted earnings per share, due to the Windows Upgrade Offer, pre-sales of Windows 8 to OEMs prior to general availability, and the Office Offer.
“The launch of Windows 8 is the beginning of a new era at Microsoft,” said Steve Ballmer, chief executive officer at Microsoft. “Investments we’ve made over a number of years are now coming together to create a future of exceptional devices and services, with tremendous opportunity for our customers, developers, and partners.”
The Server & Tools business reported $4.55 billion in first-quarter revenue, an 8% increase from the prior year period, driven by double-digit revenue growth in SQL Server and more than 20% growth in System Center revenue. In September, Microsoft continued to enrich its server offerings with the launch of Windows Server 2012.
The Microsoft Business Division posted $5.50 billion in first-quarter revenue, a 2% decrease from the prior year period. Adjusting for the impact of the Office Offer, Microsoft Business Division non-GAAP revenue increased 1% for the first quarter. Microsoft’s productivity server offerings – including Lync, SharePoint, and Exchange – continued double-digit revenue growth.
“While enterprise revenue continued to grow and we managed our expenses, the slowdown in PC demand ahead of the Windows 8 launch resulted in a decline in operating income,” said Peter Klein, chief financial officer at Microsoft. “Multi-year licensing revenue grew double-digits across Windows, Server & Tools, and Microsoft Business Division products as businesses commit to our technology roadmap.”
The Windows & Windows Live Division posted revenue of $3.24 billion, a 33% decrease from the prior year period. Adjusting for the impact of the Windows Upgrade Offer and pre-sales of Windows 8 to OEMs prior to general availability, Windows division non-GAAP revenue declined 9% for the first quarter. Windows 8 will become generally available October 26, 2012.
“We’re incredibly excited to be approaching general availability of Windows 8 and Windows RT,” said Kevin Turner, Microsoft chief operating officer. “We’ve already certified more than 1,000 systems for Windows 8 from our hardware partners, ranging from the smallest tablets and convertibles to touch-enabled ultrabooks and all-in-ones to the most powerful desktop computers.”
The Online Services Division reported revenue of $697 million, a 9% increase from the prior year period. Online advertising revenue grew 15% driven primarily by an increase in revenue per search.
The Entertainment and Devices Division posted revenue of $1.95 billion, a decrease of 1% from the prior year period. Xbox continues to be the top-selling console in the U.S., where it now has 49% market share. Windows Phone 8 will launch this fall with an expanded array of products, prices, carriers, and markets. Skype continued its rapid growth and now has over 280 million users.
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