RSSMicrosoft takes big hit: Q4 revenue falls for all product divisions
By Joe Wilcox | Published July 23, 2009, 6:55 PM
Microsoft closed fiscal 2009 with a whimper -- feeble performance not seen since the last recession in 2000-2001. Microsoft's fiscal year ended on June 30.
For fiscal fourth quarter, revenue fell -- often double digits -- for every Microsoft division: Client, Server and Tools, Business, Online Services and Entertainment & Devices. I can't recall the last time, if ever, there was such an occurrence.
Chris Liddell, Microsoft's chief financial officer, described the quarter's results as "disappointing," during a conference call late this afternoon. "Market conditions were certainly difficult in the quarter." That said, "there are some signs we have seen the worse," he said. Microsoft saw sequential Windows and Windows Server shipment gains for the first time in a year.
Actual Quarter and Year Results
For 2009 fiscal fourth quarter, Microsoft reported revenue of $13.1 billion, for a 17 percent year-over-year decline. Operating income: $3.99 billion, down 30 percent. Net income: $3.05 billion, or 34 cents a share. Net income fell by 29 percent and earnings per share by 26 percent year over year. If not for one-time charges, earnings per share would have been 4 cents higher.
Full fiscal 2009 fiscal year revenue was $58.44 billion, down 3 percent from fiscal 2008. Operating income reached $20.36 billion, down 9 percent. Net income fell 18 percent to $14.57 billion. Earnings per share fell 13 percent to $1.62.
Wall Street consensus was $14.37 billion revenue for the quarter, or expected 9.3 percent year-over-year decline. Earnings-per-share estimate was 36 cents, for a 21.7 percent consensus decline. Wall Street consensus for fiscal 2009: $59.66 billion revenue, down 1.3 percent; $1.70 earnings per share, down 9.1 percent. By pretty much every measure, Microsoft missed analyst consensus for fiscal quarter and year.
Fiscal 2009 started off strongly but went to hell in the second quarter, following the late-September 2008 stock market crash. Uncharacteristically, Microsoft stopped giving guidance to the Street, starting in second quarter. The company also announced its first-ever layoffs during the second quarter earnings announcement, in late January. Layoffs continued in fiscal third quarter.
Today, Microsoft continued its recent trend of not offering guidance for upcoming quarters. Clearly, the company still sees the sales situation, exacerbated by the global recession, as too difficult to forecast. Microsoft did offer fiscal 2010 operating expense guidance of $26.6 billion to $26.9 billion.
It's Not Over Yet
Microsoft remains challenged. The CFO warned that the economic climate would remain difficult for at least the rest of the calendar year, which would be the first half of fiscal 2010. Liddell sounded more chipper on today's conference call than the last few. He told analysts of seeing "signs now of the bottom" of the economic crisis.
As I explained last week, Microsoft has not turned the corner. There are simply too many obstacles tearing away at its core business:
- Sluggish PC sales (which hurt both big revenue products)
- Tightened IT budgets (corporate and state-and-local government)
- Smaller volume-license renewals (because of corporate downsizing)
- Credit crunch (small-and-medium business loans for new technology)
That said, fiscal 2010 is chock full of new Microsoft products or services. During fiscal 2010, Microsoft expects to launch, among other products:
- Windows 7 (October 22)
- Windows Server 2008 R2
- Windows Mobile 6.5
- Azure Services Platform (during November developer conference)
- Exchange Server 2010
- Office System 2010
Whenever there is economic recovery, Microsoft will have a strong product portfolio to offer enterprise customers. However, Microsoft's strategy bets almost solely on businesses and the continued success of the Office-Windows-Windows Server stack. The company's mobile strategy is weak, as newcomers Apple and Google make dramatic smartphone sales gains and a newer mobile-to-cloud applications platform gains momentum.
Segment Results
Once again, sluggish PC sales hurt big revenue products Office and Windows, but the operating system much more. Microsoft estimates that global PC sales declined 5 percent to 7 percent year over year.
Client. There is little good news coming from the Windows division in fourth quarter. Windows OEM unit growth fell 10 percent -- inconceivably by 3 percent to 5 percent more than PC unit declines. Increased piracy and stronger sales of PCs shipping with other operating systems, such as Mac OS, are likely factors. Microsoft identified another: OEMs buying fewer Windows licenses as they clear out excess PC inventory. Microsoft won't likely see a restocking boost until Windows 7 ships.
But bad news is worse. The mix of premium OEM SKUs fell 13 percent to 59 percent. OEM revenue fell 31 percent to $1.1 billion. OEM licenses account for about 80 percent of Windows revenues.
I blame netbooks, which I've described as a "menace" to Microsoft and Windows OEM margins. Microsoft said that non-netbook PC sales fell 16 percent to 18 percent. Microsoft estimates that netbooks made up 11 percent of PC sales. Netbooks are also pulling down average selling prices. According to NPD, at US retail, the Windows notebook ASP for June was $569 without netbooks but $520 with them.
For fiscal 2010 first quarter, Microsoft plans to defer between $1.1 billion to $1.3 billion in revenue until second quarter as part of the Windows 7 technology guarantee program. Liddell is hopeful about Windows 7. "We could see Client revenue grow faster than PC shipments by the end of the fiscal year," he said.
Server and Tools. For the second quarter in a row, the division's revenue exceeded Client. Server and Tools is Microsoft's most resilient against the econolypse. The division's quarterly year-over-year declines were less than most other product groups.
Server and Tools is somewhat insulated from slowing hardware sales, because of the high percentage of annuity license sales to businesses. That said, sluggish server hardware sales sapped revenue gains.
Business. The Office division had until this quarter largely resisted the downward pull of global recession. Major reason: Businesses buying annuity licenses. But revenue from businesses fell 10 percent, or by $413 million, largely because of volume-license agreement declines. These declines don't necessarily indicate fewer renewals. Corporate downsizing and layoffs mean many businesses will renew fewer licenses.
Consumer revenue plummeted 30 percent, or by $289 million. Microsoft blamed the sluggish PC market. Businesses account for about 80 percent of the divisions' sales and consumer 20 percent. Office accounts for about 90 percent of Business division revenues.
Online Services. Online advertising revenue declined by 14 percent, or $86 million, to $529 million. Microsoft said that the number of unique visitors has increased 15 percent since Bing's launch. Bing Shopping increased by three times and Bing Travel by 90 percent -- both since the new search engine's launch.
Entertainment & Devices. Microsoft reduced the division's losses mostly through cost containment rather than sales gains. For example, Microsoft reduced sales and marketing expenses by 30 percent, or $107 million.
The division shipped 1.2 million Xbox consoles during the quarter, down slightly year over year. Mediaroom and Zune primarily contributed to a 42 percent, or $291 million, decline in non-gaming revenue. PC gaming revenue, also affected by the sluggish PC market, fell 12 percent, or by $110 million.
one final word on the financials-
market cap: in millions
MS-app.204783
Apple- app. 142067
also keep in mind that MS has a lot more outstanding shares than Apple. Again, not a knock against either company but trying to put things in perspective.
p/e ratio
MS- 14.23
Apple- 28
outstanding share-
MS-8,899,720,022
Apple-895,816,758
more shares dilute p/e ratio
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|vacations are the best. Time to kick back, stretch out and take soem pictures to remember and share with family and co-workers
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|interesting how things time out or together
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|One thing to keep in mind is this:
MS net profit- 2,997,000.00
Apple net profit- 1,229,000.00
Apple had a great report and MS didn't but both companies have a ton of cash on hand and little debt. they will be around for a long time.
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|Droping in sales doens't mean they don't get profits. But for stockholders the word that rules is grow grow grow!!
For them get a decrease is something not acceptable no mather what.
That is why so many people are unemployed, to try to put growth back up, even if the global crises is just temporary.
My 5 cents of that day is that the employers should by the stocks and kick the rich fat guys, that don't know what work is, out of it.
regards
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|Server 2008 R2 should be a free upgrade for Server 2008 RTM customers. How many enterprise customers that upgraded to Server 2008 last year are going to upgrade again?
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|Most businesses have Software Assurance...
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|In fact very few busineses have SA. Most SMBs don't.
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|It's 3:30A.M. and do you know where your cat is? my cat won't let me sleep so I thought that I would post and join the other moronic posters
One thing. besides some bad product over the years, that struck me about MS results was maybe they made a very BIG mistake early on when they decided to, unlike Apple, just develop OS and other software and leave it to 3rd parties to make the machines. I can't help but wonder if they had made their own machine how the future then and the present now would be different. Maybe not but at this time of night you wonder about strange things:)
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|What else would you expect from the world's lamest company? Windows 7 a.k.a. Vista 2nd edition isn't going to help much. Microsoft is a dying brand.
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|Guys please forgive me because I am a SOB and MOFO :)
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|This a blog or news? Why the first person?
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|"Blog" != "Not news"
Joe Wilcox is a decade-long seasoned technology & business analyst of Microsoft, formerly of Jupiter Research where he produced dozens of reports based on his observations of Microsoft. He was usurped, (for better or worse) by Ziff Davis to take over "Microsoft Watch" from rumormonger Mary Jo Foley who I hypothesize got her facts wrong on something resulting in a shuffle of her posts to a blog more along the lines of a "TMZ for technology".
Personally, I've followed Joe's quarterly reports for years since he worked for Jupiter. I think Joe at his best when he concentrates his keen eye on the facts and provides concrete observations instead of the hype-laden, LINK-BAITING garbage that Ziff Davis breeds, which is why I'm hoping his new base at BetaNews will encourage that instead of another lame, muckraking, Mary Jo-clone.
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|Analysts sell out, that is their business model. In Joe's case, he is a well known paid Microsoft shill.
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|fatty, personally i disagree with Joe's conclusions at times, but a shill he is not. Even where i think he's wrong the thought process is usually very solid... i just disagree with the conclusion.
Journos like Joe create content which is sold passively via ads or subscription or both. Research firms are the ones who at times conduct tests or research which is sponsored by interested parties. That is a sell-out, but even they always (i hope) declare the sponsorship at the beginning of the paper. And personally i still value those papers for the numbers and stuff, but don't generally bother reading the conclusion and executive summaries... :)
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|Not exactly. Perhaps you have never seen Microsoft's approach to competition: http://www.groklaw.net/pdf/Comes-3096.pdf
The amount of money Microsoft has spent spreading FUD and propaganda around stuff is more than most countries GDP. You can see the undertone's in Joe's "stories":
1) Microsoft is the underdog
2) Vista was only bad due to negative press
3) Windows 7 is going to be perfect. Everyone should pay more to fix the broken Vista
4) Google is a monopoly
5) The myth of the Apple tax
etc....
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|I just love posters like you that make accusations without substantiation.
re: Microsoft is the underdog
Against the iPod? Against Oracle? Against Linux on web servers? Doesn't seem inaccurate to me.
re: Vista was only bad due to negative press
My whole company runs Vista. We're far better run operationally because of it. Our mgmt costs are substantially lower, and our PC's are much more secure. What's your point?
re: Windows 7 is going to be perfect
You are definitely "fatty" on this asinine line.
re: Google is a monopoly
56% of the market seems to indicate that, but why don't we let the DOJ make that conclusion - not you.
re: The myth of the Apple tax
Your point?
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|Fatty, I know Microsoft's ins and outs pretty well and i know Joe's articles. I'll just have to leave it at disagreeing with you on that one...
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|MS is such a big company that even normal reactions to market conditions look big. With Windows7, Bing, ZuneHD, Office 2010, VS2010, XBOX 360, XBOX HH? - it's got a full menu to offer to customers...and they cut down on things that were going nowhere...Money,Encarta, MSN (downgraded)...and nobody is talking about their cash reserves...remember MS is ready to buyout yahoo at close to $44b....so, it will probably take this opportunity to discard some fat...and come out leaner and meaner in 2010....who knows...it's probably time to pick up some stocks cheap now...
Just waiting for Aug 6...Windows 7 RTM....and I have 2 pre-orders ready...anybody I talk to already have placed their pre-orders on Amazon for either 49 or 99...
Analyst will have the shock of their lives when Q4 results come out...DDay...Oct 22nd....
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|Care to make a bet? Revenue will be about the same as Win7 really won't show up but R&D costs will go down and the full effects of cost cutting will have a positive effect. I bought MS stock today at 22.63 so I am very happy going forward. See you at the end of next quarter.:)
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|And here I thought the 360 was skyrocketing.
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|No worries because Windows 7 will change it. It's already been one of the best selling software in the US and so many other European countries and fortunately kill that endangered os snow leopard. Duh Snow leopard can't roar; did you know that?
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|wasn't this story just posted by scott?... wtf lol
http://www.betanews.com/...come-down-29/1248383734
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|must not forget ZuneHD, which i'll be grabbing, if the price is right... btw i hate these comment time limits, this ain't digg
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|Yes, but I think it's pretty obvious that Mr. Wilcox has a 'thing' for Apple and MS articles.
MS needs to work on their entertainment division and online services it seems. Bing may work for 2010, but I think there needs to be some changes with the Zune - in price, primarily. It's competing with the Ipod for price and you can't really do that as another player in the mp3 market. While the Zune is a great device, it's no Ipod, and what I mean by that is, the Zune Marketplace can't even see the Itunes Store on the horizon...the subscription plan is great, but to pull some customers, you need to lax' on the price, otherwise the majority will simply say, for 249 I can get either an Ipod or a Zune, then they'll say ok, Itunes Store >> Zune Marketplace.
Gosh, Apple has 91% marketshare for $1000+ PCs (of their 7% or meaning that PC makers only have less than 9% of the total market, isn't clear), then we hear that MS has taken a 'big' hit for Fiscal 2009, and that MS may become the IBM of 2010, that MS hasn't turned the corner and that one of MS big business hitters, Office 2010 is oh so 2005. Apparnetly it's lights out, or at least, dimmed for MS and Apple and Google are rising stars.
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|See my post above on who Joe Wilcox is. Yes, I'm something of a fan, but I'm not a fanboy. I think his former work at eWeek was way inferior to the great analytical content from his former work at Jupiter Research.
re: "MS needs work on their Entertainment Division"
Yeah. But MS's on the lip of the gravy train in this area, I think. They've hit critical mass in both online subscriptions & consoles sold. The console's getting cheaper annually w/ new chipsets & exponentially more games are getting sold based on attach rate & consoles sold, which MS gets a cut of on each.
And CY2010 release of Natal is certain to stretch Xbox360 interest beyond just the FY2010Q2 Holiday season.
And I agree with you: MS needs to get moving on trying to generate critical mass for Zune by applying the 'give away the razors to sell razor blades model' that Xbox360 has. And that means dropping the price to around the magical '$149/$199' pricelines for the ZuneHD and taking the short term hit to build a base and start concentrating on establishing brand loyalty. If there's a time to entice customers with cheaper products that still have buzz, this is the time.
Zune Marketplace? Wow. That's something that needs better market targeting, dontcha think? I don't think they know who they're selling Zune Pass to, for example. That could be a big win for certain customer segments but I'm not convinced that they've reached out to the right folks.
In any case, at the end of the day, anyone that thinks Zune is a major drain on that division is probably fooling themselves. The hardware's breakeven. The online infrastructure is mainly absorbed by the Online Division. R&D is small. This is nothing but a tough, but huge growth area for MS.
My 2 cents.
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|It looks like it is all over for Microsoft bar the shouting (should that be screaming?)
Compared with Apple, they are tanking.
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|Microsoft is still a money machine, even considering recent revenue declines. Microsoft's relevance may diminish over time, but the company isn't going away. Certainly IBM survived the PC and still thrives. So will Microsoft. I expect that emerging markets will recover from the econolypse first. These are more growth markets for Microsoft.
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