Microsoft results hit by launch schedule

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Software giant Microsoft has seen its bottom line shrink as it waits to place lots of new products into the channel

Microsoft has seen its bottom line shrink as it waits to place lots of new products into the channel. According to the company’s third-quarter results, Microsoft is seeing revenue and earnings per share lower than had been forecast.

Generally the third quarter was expected to be miserable for most PC companies, but it seems that Microsoft has deferred sales to next quarter for Windows 8. Microsoft has also been cutting back on its inventory and many of its partners have been doing likewise in the run up to the Windows 8 launch.

Still, the fact that Microsoft reported fiscal first-quarter earnings Thursday that missed Wall Street forecasts was a shock. The company reported quarterly revenue of $16.01 billion, which is down from $17.37 billion in the same quarter last year, as well as a profit of $4.47 billion.

Analysts had forecast revenue of $16.42 billion, the first in Microsoft’s fiscal 2013.

Most analysts do not see any cause for concern. Microsoft was punched by the weakening of the PC market which clearly affected sales. PC shipments were down about eight percent for the quarter. Microsoft is starting to put its next wave of products into the channel and it is normal for customers to put off purchases as they wait for new products to arrive.

Not only is there the October launch of Windows 8, a few days afterwards Windows Phone 8 will hit the shops. Early next year a new version of Office is expected.

The deferred sales is related to the cost of Windows upgrade packages for reseller offers and pre-sales of Windows 8 to manufacturers. There is also a $189 million Office upgrade offer cost deferred.

Accounting for the adjustments, revenue for the quarter was flat at $17.4 billion.

Microsoft’s corporate channel did much better. The Server and Tools division grew eight percent. Redmond’s business partners noticed that there was a growing shift from one-time purchases of Microsoft licences toward multiyear licences. These agreements with big businesses grew 15 percent across the company this quarter, and grew 19 percent in the Server and Tools division.

Peter Klein, Microsoft’s chief financial officer, noted that the shift toward multi-year licences is happening not just within Server and Tools, but also with offerings from other divisions, such as Office 365 and Xbox Live.

The implication is that businesses are interested in a longer-term relationship with Microsoft and its partners.


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