Microsoft's Q1 mixed ahead of Windows 8 launch

Microsoft's quarter was a mixed bag---and convoluted by the deferral of revenue related to upgrade deals. All eyes are on the Windows 8 launch.
Written by Larry Dignan, Contributor

Microsoft presented a mixed financial picture for its fiscal first quarter, which landed just before the launch of Windows 8 next week.

The company reported first quarter earnings of $4.47 billion, or 53 cents a share, on revenue of $16.01 billion, down 8 percent from a year ago. Non-GAAP first quarter earnings were 65 cents a share. Wall Street was looking for first quarter earnings of 56 cents a share on revenue of $16.42 billion.

Microsoft's first quarter included the deferral of $1.36 billion in revenue and 13 cents a share in earnings related to its Windows and Office upgrade deals and pre-sales of Windows 8.

CEO Steve Ballmer billed the Windows 8 launch as "the beginning of a new era."

Here's a look at Microsoft's assumptions for the quarters ahead.


As expected, Microsoft's enterprise business fared well. Microsoft's servers and tools unit showed an 8 percent revenue gain in the first quarter relative to a year ago. System Center revenue surged 20 percent.


The business division, which is led by Office, brought in $5.5 billion in first quarter revenue, down 2 percent from a year ago.

However, the Windows and Windows Live division saw first quarter sales tank 33 percent. Much of that decline was related to deferred upgrade revenue. Excluding upgrade offers, Windows revenue would have declined 9 percent.


As far as profitability goes, Microsoft's Office unit remains the cash cow with $3.65 billion in operating income. Servers and tools was No. 2 with operating income of $1.75 billion. Windows had operating income of $1.65 billion. 


It's also worth noting that Microsoft's online services unit pared its losses. The unit lost $364 million in the first quarter compared to a loss of $514 million a year ago. 

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