Market Minute: Microsoft Profit Dips Ahead of Office Revamp

By Bill Rigby

SEATTLE (Reuters) - Microsoft Corp's (MSFT) quarterly profit edged lower as Office software sales slowed ahead of a new launch, offsetting a solid but unspectacular start for its Windows 8 operating system and sending the company's shares down 1.4 percent.

The results mark a stark change from the 1990s, when Microsoft was the unchallenged king of computing and the release of a new Windows operating system would supercharge sales, generate excitement and generally boost its stock.

None of that appears to be true now, as Microsoft has been overtaken by Apple Inc and Google Inc in the rush toward mobile computing, while sales of traditional desktop computers are in decline.

Microsoft profit dips ahead of office revamp"There's still no sign that Windows 8 is a gangbuster," said Andrew Bartels, an analyst at Forrester Research. "Compared to prior periods, where you saw a big increase when a new one came out, you're not seeing that."

Profit at the world's largest software company slid to $6.4 billion, or 76 cents per share, in the fiscal second quarter, from $6.6 billion, or 78 cents per share, in the year-ago quarter.

Wall Street had expected 75 cents per share, on average, according to Thomson Reuters I/B/E/S.

Overall sales rose 3 percent to $21.5 billion, Microsoft said on Thursday, in line with analysts' estimates.

The biggest factor weighing on Microsoft was a 10 percent decline in sales at its Office unit to $5.7 billion, which took into account the loss of deferred revenue relating to discounted upgrades to the new version of the software, expected shortly.

"It's a pause before a product launch, which is typical," said Josh Olson, an analyst at Edward Jones.

Windows Shrug

Windows sales jumped 24 percent to $5.9 billion, slightly ahead of analysts' average expectations, which had been gradually lowered over the last few months. That also included some deferred revenue relating to discounted upgrades.

Microsoft said it has sold more than 60 million Windows 8 licenses since its late-October launch, an unexceptional start for a product which has not gripped the public's imagination in the way of Apple's iPad.

The company already announced 60 million Windows 8 sales two weeks ago, broadly in line with Windows 7 sales three years before.

"Windows 8 continues to have an uphill battle in convincing investors this is going to be the key to the growth story for Microsoft," said Daniel Ives, an analyst at FBR Capital Markets. "It continues to be a major prove-me product cycle."

Microsoft did not detail sales of its new Surface tablet - a direct competitor to the iPad - although chief financial officer Peter Klein said the company was expanding production and distribution.

Windows executives suggest that Windows will win more people over when new touch-screen devices start hitting the shelves in coming months.

"Demand is stronger than supply across a number of key device types, whether Windows tablets, convertibles, or all-in-ones," Tami Reller, chief financial officer of Microsoft's Windows unit, told Reuters earlier this month. "Most of the opportunity is still ahead of us."

Analysts seem prepared to give Microsoft more time to prove its point.

"It's been disruptive but the PC market is far from dead," said Colin Gillis, an analyst at BGC Financial. "Even if they have minimal success with Surface, they don't need much to move the needle."

Microsoft shares have fallen 2 percent since Windows 8 was launched on October 26, compared to a 5 percent gain in the tech-heavy Nasdaq composite index. They fell to $27.06 in after-hours trading, after closing at $27.23 on Nasdaq.

(Additional reporting by Jennifer Saba; Editing by Richard Chang and Bob Burgdorfer)

Increase your money and finance knowledge from home

Understanding Stock Market Indexes

What does it mean when people say "the market is up 2%"?

View Course »

Behavioral Finance

Why do investors make the decisions that they do?

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

I bought my daughter a new laptop with Windows 8. We tried to load programs. Adobe Acrobat will NOT work on Windows 8. No solution in sight.

January 25 2013 at 6:59 PM Report abuse rate up rate down Reply
sweet mag

just purchased a new lap top with windows 8 ...and I don't like the new style. I'm all about forging ahead and change ..but this goes a bit too far for the everyday user. No Start Menu anymore ... Everything is hidden and you have to know to put your cursor in this corner or that one and left or right click in order to find what you are looking for have to know keyboard shortcuts which I had no clue about .And a few options have been given new names which just don't even correlate with what they were named before so you have no clue they are the same thing. Luckily I bought through Costco and their customer service electronics help has been a God send for me ..However my friend who bought through another store has no customer service help and is left to try and figure things out alone. I think the change on 8 is too much for those of us that are the average consumer and not computer techies ... My Least favorite is the Squares or Cubes board whatever it is called. I definitely prefer the desktop ... but that's just personal taste. It would be nice however if you don't want use of that screen to be able to opt out or disengage it.

January 25 2013 at 12:47 PM Report abuse rate up rate down Reply

The idea of having and using a PC is to make life easier; Windows 8 fails in this. All the additional bells and wistles they've added confuse more people than help. It is not user friendly to a regular "Joe" it is great only for those who thrive in ever changing technology which are far fewer than Microsoft engineers thing. I think the analogy of the 1% vs the rest of us is appropiate here. The 1% being the techno nerds.

January 25 2013 at 11:25 AM Report abuse rate up rate down Reply

"Some people can and some people cannot". That statement is true regardless on what subject we converse about.
For people with a slow learning curve and an unwillingness to "Read and follow the Instructions" anything new is difficult for them. Windows 8 is praised by knowledgeable people who have the ability to learn fast and Win8 is cursed by people who cannot figure it all out. Just as over 60% of us do not properly install child car seats in over vehicles because 60% of us do not read the instructions or understand what we read. While the National Highway Safety agency has requested that child car seat manufacturers re-write their instructions so a Third Grader level person can understant the instructions___I doubt it is appropriate for Microsoft to design their operating systems so the mentally challanged can deal with it.

January 25 2013 at 10:54 AM Report abuse rate up rate down Reply

i hated windows 8

January 25 2013 at 10:41 AM Report abuse rate up rate down Reply

It will be interesting to see if Office 2013 will save them

January 25 2013 at 10:28 AM Report abuse rate up rate down Reply

Hated windows 8, didn't leave it on my computer long. Microsoft really messed up with this one.

January 25 2013 at 10:19 AM Report abuse rate up rate down Reply

Hated windows 8, didn't leave it on my computer long.

January 25 2013 at 10:18 AM Report abuse rate up rate down Reply

Windows 8 sucks, really a pain in the A%^. Its an apple, android want to be and I don't like those either.

January 25 2013 at 9:54 AM Report abuse rate up rate down Reply
Hi Art & Nan

That's because Windows 8 S-U-C-K-S!!!

January 25 2013 at 9:50 AM Report abuse +1 rate up rate down Reply