Microsoft's quarterly earnings fall for the first time

For the first time since Microsoft (Nasdaq: MSFT) became a public company some 23 years ago, it reported a decline in quarterly earnings from its year- prior results. The one area that did not shrink was its Server and Tools division. Microsoft's profits also nosedived more sharply than Wall Street had expected. According to the AP:

"Microsoft said that in its fiscal third-quarter, which ended March 31, profit dropped 32 percent to $2.98 billion, or 33 cents per share. In the same quarter of 2008, Microsoft earned $4.39 billion, or 47 cents per share."

Revenue dropped 6 percent to $13.6 billion. Analysts were on average expecting 39 cents a share on $14.1 billion of revenue, according to Thompson Reuters.

$290 million of the bad news was costs such as severance pay from Microsoft's layoffs and $420 million of losses associated with investments. These cut earnings by 6 cents a share, says the Wall Street Journal.

 Three Months Ended March 31    
Revenue $13,648 $14,454
Net income $ 2,977 $4,388

The one area where Microsoft saw growth was its Servers and Tools division, which showed a 7% increase in revenue over the same quarter a year prior. Server and Tools is the unit that licenses Windows Server, Microsoft SQL Server, and other server products not included Microsoft Office servers. But it also includes developer tools, training, certification, books and professional services. The Microsoft Business Division which sells Office, declined in revenues by 5% and in profits by 8%.

Note, too, that Microsoft's Entertainment and Online Advertising businesses continue to drain it. The Entertainment unit lost $68 million this quarter, compared to a profit of $67 million in Q3 2009. The Advertising unit doubled its loss to $575 million, compared to a loss of $226.

Three Months Ended March 31    
(In millions) 2009 2008
Revenue $ $
Client 3273 3932
Server and Tools 3469 3244
Online Services Business 721 839
Microsoft Business Division 4507 4733
Entertainment and Devices Division 1567 1594
Unallocated and other 111 112
     
Consolidated 13648 14454
     
Operating income (loss) $ $
Client 2351 2977
Server and Tools 1284 970
Online Services Business (582) (256)
Microsoft Business Division 2834 3082
Entertainment and Devices Division (68) 67
Reconciling amounts (1381) (2550)
     
Consolidated 4438 4290
     

While it is true that the crummy economy has impacted Microsoft, not all of its competitors are also hurting. Apple this week announced earnings of $1.33 a share on revenue of $8.16 billion, which Apple said was the best earnings for a post-holiday quarter in its history. While Mac PC sales were down 3% over Q3 2008, the company more than made up for it with sales of its very high margin iPhone and iPod devices.

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