Microsoft Q3: Profit up despite PC market slump; CFO out

Microsoft Q3: Profit up despite PC market slump; CFO out

Summary: A win on the bottom line and a tiny ding on the top line. While Microsoft touted its Business unit as the division that carried the quarter, the company stayed mum on Windows sales.

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TOPICS: Microsoft
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In spite of declining PC sales and cautious chipmakers, Microsoft fared well in the third quarter.

The software giant reported third quarter revenue of $20.49 billion or 72 cents a share, missing analyst expectations on revenue by a fraction. Operating income was $7.61 billion while net income stood at $6.06 billion.

Wall Street expected Microsoft to report third quarter earnings of 68 cents a share on revenue of $20.5 billion. 

It's a bottom-line win, and a top-line loss.

Screen Shot 2013-04-18 at 16.11.38

Microsoft chief executive Steve Ballmer said he was "optimistic" that all the bets the company has made on Windows devices will "position us well for the long-term." But the company couldn't escape a massive $733 million fine imposed by the European Commission for falling to maintain its antitrust commitments.

He noted in his prepared remarks that there is "there is still work to do," noting Microsoft services Azure, Xbox and Windows Live, but didn't mention Windows 8.

The company also announced that its chief financial officer, Peter Klein, will leave the company at the end of the coming fourth quarter. A new CFO will replace Klein in "the next several weeks."

Microsoft said its Windows Division posted revenue of $5.70 billion, a 23 percent increase on the same quarter a year ago.

It's surprising considering the death throes warning over PC sales at the moment. No word on Windows 8 sales yet — or Surface sales for that matter — but it with revenue up by nearly one-quarter it can't be doing too badly. At the last count in early January, Microsoft had sold 60 million licenses.

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(Image: Microsoft)

The Business division reported an 8 percent jump in revenue year-over-year, amounting $6.32 billion in total. The unit includes the Office suite, which remains one of the company's greatest money makers, and its Web-based Office 365 service.

c-biz
(Image: Microsoft)

The Server & Tools division generated $5.04 billion in total, an 11 percent rise from the same quarter a year ago. SQL Server and System Center carried the division this quarter with revenue growing 16 percent and 22 percent respectively.

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(Image: Microsoft)

Meanwhile, its Online Services Division posted $832 million, up 17 percent year-over-year. An increase in revenue per search led to a spike of 22 percent in online advertising revenue.

Finally, home of the Xbox and Windows Phone, Microsoft's Entertainment and Devices division saw a 56 percent jump in revenue for the prior year period at $2.53 billion.

It comes as Nokia announced on Thursday that Lumia sales, which run the Windows Phone software, were up by one-quarter to 5.6 million shipments. Around two-thirds of all Lumia shipments were Windows Phone 8-based products, Nokia said.

It's little surprise that Microsoft's Business division and Server & Tools division — the company's two enterprise-focused units — put out another solid quarter. Evercore analysts Kirk Materne and Matthew Williams said in a note this week that they expect their strong performance to be "largely overshadowed by the challenges in the Windows business."

Materne and Williams said looking ahead that Microsoft's focus should be on "making its apps extensible to all devices," hinting at Office on iOS and Android platforms — not now expected until late 2014 — and using its "massive free cash flow to help bolster its efforts in areas such as analytics and unstructured data management."

Since the start of the calendar year, Microsoft's share price has risen by 8 percent, from $26.70 to nearly $29 a share, and continues to steadily climb. 

On today's earnings, Microsoft was up more than 2 percent in after-hours trading.

Screen Shot 2013-04-18 at 17.04.56
$MSFT in after-hours trading after its Q3 earnings release. (Image: Google Finance)

Looking ahead, Microsoft is revising down its outlook to $30.2 billion to $30.5 billion for the fiscal full year ending June 30, partly as a result of the European Commission fine imposed earlier this year.

Screen Shot 2013-04-18 at 17.32.25
(Image: Microsoft)

Topic: Microsoft

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116 comments
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  • Just so we are clear though, MS is about to die

    MS Revenue: $18-20 Billion (increase of 8-20% so in INFINITY years, revenue will be $0)
    Google Revenue: $14 Billion

    MS Income: $6-7 Billion (increase of 5-19% so in INFINITY years, earnings will be $0)
    Google Income: $3 Billion

    MS EPS / share price: 2.4%
    Google EPS / share price: 1.3%

    But yeah, THIS is the year MS dies. "As long as it takes" for Ballmer to destroy MS? At this rate, it will take INFINITY years.
    toddbottom3
    • Be nice to ABMers

      They have been frustrated by MSFT for ... let's see ... at least 15 years?
      LBiege
      • Yes LBiege, at least.

        I think it's closer to 20 now. :)
        xuniL_z
    • You forgot that MS raised all its rates by 20%

      just a couple of months ago.

      How long does it take businesses to decide to reject the extortion?
      jessepollard
      • Ah, glad you clarified

        So when you and your peers have been screaming for years that THIS was the year that Microsoft dies, what you meant was:
        "Just wait until Microsoft raises ALL of their rates by 20%. THAT will be the year Microsoft dies."

        Because after all your years of screaming, during the years where Microsoft has raised some rates, lowered others, Microsoft just posted record numbers. This time though, it is different. At least that is what you are promising.
        toddbottom3
        • Seriously Todd....did ANYONE ever say THIS Year?? Or even "next year"?

          Who are all these "you and your peers" into whose mouths' you are putting this claim? Your statement clearly indicates that this is widely stated opinion, so you should have no trouble finding a good handful or so.

          Or are you just putting up a straw man??
          UGottaBKidding
          • You can choose not to believe me

            Those who have been here a while know exactly what I'm talking about.

            However, you can disagree that there has been a contingent on ZDNet that have claimed that Microsoft is DOOMED, DOOMED I TELL YOU. Since there doesn't seem to be any way of searching through ZDNet comments anymore, you can feel comfortable sticking with your belief that no one has ever claimed MS was about to die.

            And armed with your belief that this is the first time ever that anyone has ever claimed that MS was JUST about to suffer a huge misfortune based on (insert some reason here) you can quite comfortably believe that jesse is absolutely correct in his guess that MS is JUST about to suffer HUGE consequences for doing something that never happened: raising ALL their rates by 20%.

            So, want to go on the record and support jesse in his claim that Microsoft is about to suffer HUGE consequences to raising ALL their rates by 20% (even though they didn't)?
            toddbottom3
          • Your failure to cite any specific examples speaks volumes

            It's really funny watching you desperately try to move the goalposts...

            Suddenly it's about "huge consequences" instead of "microsoft dies" as in your original comment.

            It's about "the first time anyone has ever claimed" instead of "you and your peers" 'for years' in your original

            You've gone from claiming that jesse in the specific was making these claims to being unable to cite anyone.

            Even with that change the best you can do is hurl vague claims. That's just sad.
            UGottaBKidding
          • UGottaBKidding Me...

            ... You're still here?

            Do you have a fixation on toddbottom3 or something?
            ForeverCookie
        • No.

          At best, MS is remaining with a flat projection.

          Raising the cost to the customers will increase the departure rate of customers to other vendors.

          If MS raises rates AGAIN to maintain their profit level then the departure rate will increase... even faster.

          And MS DID raise all their rates. The apparent decrease is overshadowed by the rates on the software that those products require.
          jessepollard
          • jessepollard: Give it up already. It can't be denied that MS had great

            quarter, and that they will continue getting great numbers. Even their "weakest" division, that being the one with Windows, had good numbers, even after the millions of pronouncements of the death of Windows and PCs. Their other divisions are solid, and in growth mode. It doesn't matter that prices might go up or down on some services or products; the consumer either wants a product or service, or not. What's been proven to be true is that, there is a demand for whatever Microsoft has put out there, no matter what it is, and no matter how many services and products they do put out.

            Desperately seeking new causes for why Microsoft will fail, is a form of denial, and denial is almost always going against the facts you wish to deny exist.

            Microsoft has proved the naysayers wrong again, as they have for many years. Now, go and find something else to feel angry about.
            adornoe
          • Well said

            n/t
            Ndiaz.fuentes
          • My comment was directed @adornoe, btw

            n/t
            Ndiaz.fuentes
          • Ndiaz.fuentes...I fully agree with you and all other rational thinkers.

            xuniL_z
  • Couple other points

    "Since the start of the calendar year, Microsoft's share price has risen by 8 percent, from $26.70 to nearly $29 a share, and continues to steadily climb."

    Meanwhile, the same investment in aapl would have lost you 15%. "As long as it takes" for Tim Cook to destroy apple, right boys?

    "Microsoft fared the third quarter well, all things considering"

    Yeah, record revenues and EPS are basically "faring well, all things considered".

    "As long as it takes"
    toddbottom3
    • Wouldn't you have liked to see some Win 8 sales numbers though?

      Especially after they touted the early stats. It would've been nice.

      I'm not saying that Win 8 sales suck...just that in the absence of actual data people will inevitably speculate about why they're suddenly mum on this.
      UGottaBKidding
      • No, I don't care

        Here is what I wrote on another article today:
        "My Windows 8 laptop and my Surface RT are great devices, whether 10 people, 1 million people, or 1 billion people bought the same thing. Likewise, my ipad and iphone were horrible devices, whether 10 people, 1 million people, or 1 billion people bought the same thing (or whether aapl is at $700 or at $390)."

        The only people who care about Windows sales seem to be the people who hate Microsoft and have vowed to never use Windows. Oh, hi UGottaBKidding, didn't see you there.
        toddbottom3
        • Mary Jo Foley has vowed to never use Windows??

          Come on Toddy...you can do better. Surely you saw the blog right after this one where Mary Jo writes about Win 8 sales numbers as the number "we all want to know".

          So...please...nice try...but "swing and a miss"

          You don't have to be a MS hater to wonder why MS didn't specify the number of Win 8 sales...nor do you have to vow to never use Windows to speculate about why they're coy now when they clearly weren't earlier.
          UGottaBKidding
          • I've stated I don't care

            You clearly do.

            Why? What do you have that is relying on you knowing precisely what Windows 8 sales were? What decisions are you going to make if they are good? What decisions are you going to make if they are bad?

            We all know you hate Microsoft and you hate Windows and you won't ever use them. MJF cares because she reports on Microsoft and this is a statistic that a vocal minority (that's you) care a great deal about. You and your peers are desperately hoping that sales are bad so you can justify your decision to not use Windows 8. Here is a news flash: you are free to not use Windows 8 regardless of what the sales are. You don't report on Microsoft (unlike MJF) and so Windows 8 sales shouldn't mean a thing to apple lovers like you.

            Yet you do care. You care a lot. Odd.
            toddbottom3
          • I never said I cared...I said I wondered why they didn't

            I simply refuted your claim that you had to be a MS hater to be interested..

            Mary Jo Foley cares...a lot. Enough to write a blog post about it and to put it in her headline. You don't have to be a MS hater or vow to never use Windows to wonder why they didn't announce actual numbers.

            It just seems like a strange (odd) move to me to knowingly create an information vacuum about something people will inevitably be interested in. MS must have known that people like Mary Jo would want to know. The people at MS aren't stupid...why would they do that....whether the numbers are great or sucky.

            For the record...I use MS products on a daily basis...not a hater at all.
            UGottaBKidding