Microsoft takes $900 million hit for unsold Surface RTs in 4Q13 earnings

An otherwise healthy earnings statement from Microsoft was overshadowed by a substantial $900 million charge attributed to "Surface RT inventory adjustments." The ARM-powered tablet, Microsoft's first foray into selling computers, recently had its price cut by $150 to $349 amid long-standing reports of poor sales. With this $900 million charge, those poor sales and price cuts are hitting Microsoft's bottom line.

Revenue for the fourth quarter was $19.896 billion, up 10 percent on the same quarter last year. Operating income was $6.073 billion and earnings per share $0.59, both essentially unchanged from a year ago.

As ever, Microsoft also published non-GAAP numbers. The GAAP numbers defer revenue that was taken for Office 2013 and Windows 8 prior to the availability of the software, not booking the revenue until the software is actually delivered. The non-GAAP numbers book the revenue as soon as it's taken. Under that metric, quarterly revenue was $19.114 billion, up three percent year on year. Operating income was $5.291 billion, down 24 percent year on year, and earnings per share were $0.52, down 29 percent on a year ago.

For the full 2013 financial year, revenue was $77.849 billion, up six percent on 2012. Operating income was $26.764 billion, an increase of 23 percent, and earnings per share were $2.58, a 29 percent improvement. Much of this improvement is due to 2012's $6.193 billion write-down over the aQuantive purchase.

Though Microsoft has announced a significant corporate reorganization, its financial reporting uses the same divisional model and could continue to do so even as the reorganization is implemented. Full details of this will be disclosed in September.

Windows division revenue—which includes Surface RT—saw the fourth quarter grow by six percent to $4.411 billion, with operating income down 54 percent to $1.099 billion. For the full year, the division had revenue of $19.239 billion, up 4.6 percent, and an operating income of $9.504 percent, down 18 percent.

The division continues to suffer from the downturn in the broader PC market. OEM revenue was down 15 percent, driven by the decline of x86 sales. Non-OEM revenue was up 22 percent, with double-digit growth in volume licensing. The company says that close to three-quarters of enterprise desktops are now using Windows 7.

The Server and tools division posted quarterly revenue of $5.502 billion, up nine percent year on year. Operating income was $2.325 billion, up 14 percent. For the full year, revenue was $20.281 billion, up nine percent on 2012, and operating income was up 13 percent at $8.164 billion.

Both product revenue and Enterprise Services showed nine percent growth. System Center showed growth of 14 percent, SQL Server increased revenue by 16 percent. The company reports growing Azure momentum, too, with 25 percent more enterprise customers.

Microsoft Business Division had quarterly revenue of $7.213 billion, up 14 percent, with operating income of $4.873 billion, an increase of 18 percent. Over the full year, revenue was up three percent to $24.724 billion and operating income was up two percent to $16.194 billion.

Business revenue, representing about 85 percent of the division's revenue, was up seven percent. Business subscription revenue was up 10 percent, offsetting a one percent drop in license-only transactional revenue. Consumer revenue was hammered, however, falling by 27 percent due to the weakness of the x86 market. Office 365 is now on track to have annual revenue of $1.5 billion, with more than one million users of the consumer-oriented Office 365 Home Premium version. Exchange, SharePoint, and Lync all experienced double-digit growth.

Online Services division revenue for the quarter was $0.804 billion, up nine percent on the same quarter last year. Operating loss was $0.372 billion. The loss a year ago was $6.672 billion, but most of this was due to the aQuantive write-down. Excluding that, the loss has been reduced by $0.107 billion, or 22 percent. Full year revenue was $3.201 billion, up 12 percent.

Entertainment and Services division had quarterly revenue of $1.915 billion, up eight percent on last year. The division posted an operating loss of $0.110 billion, a 57 percent reduction on last year. Full year revenue was $10.165 billion, up six percent on 2012, with operating income of $0.848 billion, up 123 percent from last year.

Even as it heads toward replacement, Xbox 360 is continuing to sell, with the company shifting a million units last quarter. Xbox LIVE revenue was up by about 20 percent. Windows Phone-related revenue, covering both Windows Phone and patent licensing agreements, was up $0.222 billion.

The company also offered guidance for the first quarter of the 2014 financial year. Windows division will continue to suffer from the poor PC market, with OEM revenue (about 65 percent of what the division turns over) expected to decline by the mid teens. Server and Tools revenue is expected to grow by high single digits. Business division enterprise revenue is anticipated to grow by mid-single digits, but consumer revenue will lag the PC market by five percent. The company estimates that Online Services revenue will grow by double digits. Entertainment and Devices revenue will decline by low single digits.

The quarterly and full year results for the Business and Server divisions were both strong. Online Services continues to lose money, though it's losing less each quarter. Entertainment and Devices seemed to perform decently, considering the age of Xbox and the significant seasonal variations it experiences. Setting aside the Surface adjustment, even the Windows division performed reasonably well, considering the general malaise of the PC market.

But that Surface adjustment is huge. The company said that it's for Surface RT and related parts and accessories. We don't know the exact breakdown of the $900 million figure. Worst case, it implies that the company has six million Surface RTs ($900 million divided by $150 price cut per unit) sitting unsold. The true number may be a little lower, due to some of the hit coming from parts and accessories. But Microsoft is still sitting on several million—perhaps as many as five—Surface RTs.

That the company is struggling to sell them is perhaps not so surprising. The value proposition of the Surface RT was never clear. For those who wanted an out-and-out tablet, the Nexus 10 and iPad were in the same price ballpark but with much richer ecosystems. For those who really wanted Windows software, Atom-powered devices provided a lot more compatibility and a bit more performance, again with prices in the same ballpark. Surface RT was stuck awkwardly in the middle.

What is surprising, however, is that the company so grossly overestimated demand for the product that it apparently had its manufacturers build many millions, such that it would then have to write down the value of millions of units of unsold Surface RT stock. That's a spectacular misjudgment.

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Microsoft takes $900 million hit for unsold Surface RTs in 4Q13 earnings

An otherwise healthy earnings statement from Microsoft was overshadowed by a substantial $900 million charge attributed to "Surface RT inventory adjustments." The ARM-powered tablet, Microsoft's first foray into selling computers, recently had its price cut by $150 to $349 amid long-standing reports of poor sales. With this $900 million charge, those poor sales and price cuts are hitting Microsoft's bottom line.

Revenue for the fourth quarter was $19.896 billion, up 10 percent on the same quarter last year. Operating income was $6.073 billion and earnings per share $0.59, both essentially unchanged from a year ago.

As ever, Microsoft also published non-GAAP numbers. The GAAP numbers defer revenue that was taken for Office 2013 and Windows 8 prior to the availability of the software, not booking the revenue until the software is actually delivered. The non-GAAP numbers book the revenue as soon as it's taken. Under that metric, quarterly revenue was $19.114 billion, up three percent year on year. Operating income was $5.291 billion, down 24 percent year on year, and earnings per share were $0.52, down 29 percent on a year ago.

For the full 2013 financial year, revenue was $77.849 billion, up six percent on 2012. Operating income was $26.764 billion, an increase of 23 percent, and earnings per share were $2.58, a 29 percent improvement. Much of this improvement is due to 2012's $6.193 billion write-down over the aQuantive purchase.

Though Microsoft has announced a significant corporate reorganization, its financial reporting uses the same divisional model and could continue to do so even as the reorganization is implemented. Full details of this will be disclosed in September.

Windows division revenue—which includes Surface RT—saw the fourth quarter grow by six percent to $4.411 billion, with operating income down 54 percent to $1.099 billion. For the full year, the division had revenue of $19.239 billion, up 4.6 percent, and an operating income of $9.504 percent, down 18 percent.

The division continues to suffer from the downturn in the broader PC market. OEM revenue was down 15 percent, driven by the decline of x86 sales. Non-OEM revenue was up 22 percent, with double-digit growth in volume licensing. The company says that close to three-quarters of enterprise desktops are now using Windows 7.

The Server and tools division posted quarterly revenue of $5.502 billion, up nine percent year on year. Operating income was $2.325 billion, up 14 percent. For the full year, revenue was $20.281 billion, up nine percent on 2012, and operating income was up 13 percent at $8.164 billion.

Both product revenue and Enterprise Services showed nine percent growth. System Center showed growth of 14 percent, SQL Server increased revenue by 16 percent. The company reports growing Azure momentum, too, with 25 percent more enterprise customers.

Microsoft Business Division had quarterly revenue of $7.213 billion, up 14 percent, with operating income of $4.873 billion, an increase of 18 percent. Over the full year, revenue was up three percent to $24.724 billion and operating income was up two percent to $16.194 billion.

Business revenue, representing about 85 percent of the division's revenue, was up seven percent. Business subscription revenue was up 10 percent, offsetting a one percent drop in license-only transactional revenue. Consumer revenue was hammered, however, falling by 27 percent due to the weakness of the x86 market. Office 365 is now on track to have annual revenue of $1.5 billion, with more than one million users of the consumer-oriented Office 365 Home Premium version. Exchange, SharePoint, and Lync all experienced double-digit growth.

Online Services division revenue for the quarter was $0.804 billion, up nine percent on the same quarter last year. Operating loss was $0.372 billion. The loss a year ago was $6.672 billion, but most of this was due to the aQuantive write-down. Excluding that, the loss has been reduced by $0.107 billion, or 22 percent. Full year revenue was $3.201 billion, up 12 percent.

Entertainment and Services division had quarterly revenue of $1.915 billion, up eight percent on last year. The division posted an operating loss of $0.110 billion, a 57 percent reduction on last year. Full year revenue was $10.165 billion, up six percent on 2012, with operating income of $0.848 billion, up 123 percent from last year.

Even as it heads toward replacement, Xbox 360 is continuing to sell, with the company shifting a million units last quarter. Xbox LIVE revenue was up by about 20 percent. Windows Phone-related revenue, covering both Windows Phone and patent licensing agreements, was up $0.222 billion.

The company also offered guidance for the first quarter of the 2014 financial year. Windows division will continue to suffer from the poor PC market, with OEM revenue (about 65 percent of what the division turns over) expected to decline by the mid teens. Server and Tools revenue is expected to grow by high single digits. Business division enterprise revenue is anticipated to grow by mid-single digits, but consumer revenue will lag the PC market by five percent. The company estimates that Online Services revenue will grow by double digits. Entertainment and Devices revenue will decline by low single digits.

The quarterly and full year results for the Business and Server divisions were both strong. Online Services continues to lose money, though it's losing less each quarter. Entertainment and Devices seemed to perform decently, considering the age of Xbox and the significant seasonal variations it experiences. Setting aside the Surface adjustment, even the Windows division performed reasonably well, considering the general malaise of the PC market.

But that Surface adjustment is huge. The company said that it's for Surface RT and related parts and accessories. We don't know the exact breakdown of the $900 million figure. Worst case, it implies that the company has six million Surface RTs ($900 million divided by $150 price cut per unit) sitting unsold. The true number may be a little lower, due to some of the hit coming from parts and accessories. But Microsoft is still sitting on several million—perhaps as many as five—Surface RTs.

That the company is struggling to sell them is perhaps not so surprising. The value proposition of the Surface RT was never clear. For those who wanted an out-and-out tablet, the Nexus 10 and iPad were in the same price ballpark but with much richer ecosystems. For those who really wanted Windows software, Atom-powered devices provided a lot more compatibility and a bit more performance, again with prices in the same ballpark. Surface RT was stuck awkwardly in the middle.

What is surprising, however, is that the company so grossly overestimated demand for the product that it apparently had its manufacturers build many millions, such that it would then have to write down the value of millions of units of unsold Surface RT stock. That's a spectacular misjudgment.

View the original article here

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Microsoft takes $900 million hit for unsold Surface RTs in 4Q13 earnings

An otherwise healthy earnings statement from Microsoft was overshadowed by a substantial $900 million charge attributed to "Surface RT inventory adjustments." The ARM-powered tablet, Microsoft's first foray into selling computers, recently had its price cut by $150 to $349 amid long-standing reports of poor sales. With this $900 million charge, those poor sales and price cuts are hitting Microsoft's bottom line.

Revenue for the fourth quarter was $19.896 billion, up 10 percent on the same quarter last year. Operating income was $6.073 billion and earnings per share $0.59, both essentially unchanged from a year ago.

As ever, Microsoft also published non-GAAP numbers. The GAAP numbers defer revenue that was taken for Office 2013 and Windows 8 prior to the availability of the software, not booking the revenue until the software is actually delivered. The non-GAAP numbers book the revenue as soon as it's taken. Under that metric, quarterly revenue was $19.114 billion, up three percent year on year. Operating income was $5.291 billion, down 24 percent year on year, and earnings per share were $0.52, down 29 percent on a year ago.

For the full 2013 financial year, revenue was $77.849 billion, up six percent on 2012. Operating income was $26.764 billion, an increase of 23 percent, and earnings per share were $2.58, a 29 percent improvement. Much of this improvement is due to 2012's $6.193 billion write-down over the aQuantive purchase.

Though Microsoft has announced a significant corporate reorganization, its financial reporting uses the same divisional model and could continue to do so even as the reorganization is implemented. Full details of this will be disclosed in September.

Windows division revenue—which includes Surface RT—saw the fourth quarter grow by six percent to $4.411 billion, with operating income down 54 percent to $1.099 billion. For the full year, the division had revenue of $19.239 billion, up 4.6 percent, and an operating income of $9.504 percent, down 18 percent.

The division continues to suffer from the downturn in the broader PC market. OEM revenue was down 15 percent, driven by the decline of x86 sales. Non-OEM revenue was up 22 percent, with double-digit growth in volume licensing. The company says that close to three-quarters of enterprise desktops are now using Windows 7.

The Server and tools division posted quarterly revenue of $5.502 billion, up nine percent year on year. Operating income was $2.325 billion, up 14 percent. For the full year, revenue was $20.281 billion, up nine percent on 2012, and operating income was up 13 percent at $8.164 billion.

Both product revenue and Enterprise Services showed nine percent growth. System Center showed growth of 14 percent, SQL Server increased revenue by 16 percent. The company reports growing Azure momentum, too, with 25 percent more enterprise customers.

Microsoft Business Division had quarterly revenue of $7.213 billion, up 14 percent, with operating income of $4.873 billion, an increase of 18 percent. Over the full year, revenue was up three percent to $24.724 billion and operating income was up two percent to $16.194 billion.

Business revenue, representing about 85 percent of the division's revenue, was up seven percent. Business subscription revenue was up 10 percent, offsetting a one percent drop in license-only transactional revenue. Consumer revenue was hammered, however, falling by 27 percent due to the weakness of the x86 market. Office 365 is now on track to have annual revenue of $1.5 billion, with more than one million users of the consumer-oriented Office 365 Home Premium version. Exchange, SharePoint, and Lync all experienced double-digit growth.

Online Services division revenue for the quarter was $0.804 billion, up nine percent on the same quarter last year. Operating loss was $0.372 billion. The loss a year ago was $6.672 billion, but most of this was due to the aQuantive write-down. Excluding that, the loss has been reduced by $0.107 billion, or 22 percent. Full year revenue was $3.201 billion, up 12 percent.

Entertainment and Services division had quarterly revenue of $1.915 billion, up eight percent on last year. The division posted an operating loss of $0.110 billion, a 57 percent reduction on last year. Full year revenue was $10.165 billion, up six percent on 2012, with operating income of $0.848 billion, up 123 percent from last year.

Even as it heads toward replacement, Xbox 360 is continuing to sell, with the company shifting a million units last quarter. Xbox LIVE revenue was up by about 20 percent. Windows Phone-related revenue, covering both Windows Phone and patent licensing agreements, was up $0.222 billion.

The company also offered guidance for the first quarter of the 2014 financial year. Windows division will continue to suffer from the poor PC market, with OEM revenue (about 65 percent of what the division turns over) expected to decline by the mid teens. Server and Tools revenue is expected to grow by high single digits. Business division enterprise revenue is anticipated to grow by mid-single digits, but consumer revenue will lag the PC market by five percent. The company estimates that Online Services revenue will grow by double digits. Entertainment and Devices revenue will decline by low single digits.

The quarterly and full year results for the Business and Server divisions were both strong. Online Services continues to lose money, though it's losing less each quarter. Entertainment and Devices seemed to perform decently, considering the age of Xbox and the significant seasonal variations it experiences. Setting aside the Surface adjustment, even the Windows division performed reasonably well, considering the general malaise of the PC market.

But that Surface adjustment is huge. The company said that it's for Surface RT and related parts and accessories. We don't know the exact breakdown of the $900 million figure. Worst case, it implies that the company has six million Surface RTs ($900 million divided by $150 price cut per unit) sitting unsold. The true number may be a little lower, due to some of the hit coming from parts and accessories. But Microsoft is still sitting on several million—perhaps as many as five—Surface RTs.

That the company is struggling to sell them is perhaps not so surprising. The value proposition of the Surface RT was never clear. For those who wanted an out-and-out tablet, the Nexus 10 and iPad were in the same price ballpark but with much richer ecosystems. For those who really wanted Windows software, Atom-powered devices provided a lot more compatibility and a bit more performance, again with prices in the same ballpark. Surface RT was stuck awkwardly in the middle.

What is surprising, however, is that the company so grossly overestimated demand for the product that it apparently had its manufacturers build many millions, such that it would then have to write down the value of millions of units of unsold Surface RT stock. That's a spectacular misjudgment.

View the original article here

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Wall St. Week Ahead: Stocks face the Fed, jobs and earnings

By Caroline Valetkevitch

NEW YORK (Reuters) - The coming week on Wall Street could be a summer blockbuster, with the marquee featuring a triple bill: the Fed, jobs and earnings.

Of the three, the Federal Reserve has the most potential to upset the market. The Federal Open Market Committee is expected to release a statement on Wednesday after a two-day meeting.

Fed Chairman Ben Bernanke jolted markets in late May by saying the U.S. central bank planned to ease back on its stimulus efforts once the economy improves. Investors have been glued to his every comment since then.

"The Fed can easily either scare investors or encourage investors without having to say very much," said Bryant Evans, portfolio manager at Cozad Asset Management in Champaign, Illinois.

It "tends to create the biggest knee-jerk reactions out of the market."

As part of its quantitative easing policy, the Fed has been buying Treasury debt and other bonds each month to keep interest rates low and promote growth.

Stocks have rallied for most of this year, with both the Dow and the Standard & Poor's 500 hitting record highs, partly because of the Fed's stimulus efforts.

The market slid after Bernanke's comments on May 22, with the S&P 500 dropping nearly 6 percent in the month that followed.

But remarks from Bernanke and other Fed officials since then have calmed the market and erased those declines.

Bernanke reassured markets last week, saying the timeline for winding down the U.S. central bank's stimulus program was not set in stone.

The S&P 500 is up 18.6 percent for the year so far.

Trading has been more subdued this week, with more focus on earnings. The S&P 500 ended the week with just a slight loss of 0.03 percent, breaking its four-week winning streak.

While some analysts said the CBOE Volatility Index <.vix> did not appear to be pricing in a lot of volatility for next week, there could still be a shift in sentiment. On Friday, the VIX fell 1.9 percent to end at 12.72.

"I do expect to see an increase in volatility next week, but that increase is coming after a week of very quiet trading," said WhatsTrading.com options strategist Frederic Ruffy in Chicago.

Some market attention has also shifted to speculation over possible successors to Bernanke, though a senior White House official said on Friday that no announcement is imminent. President Barack Obama has signaled that Bernanke is likely to step down when his second four-year term as Fed chairman ends January 31. Former U.S. Treasury Secretary Lawrence Summers and current Fed Vice Chair Janet Yellen are among names cited.

IT'S ALL ABOUT JOBS

Friday will bring the Labor Department's July employment report.

The job market's recovery is seen as key to the future of Fed policy. The Fed has said it will keep interest rates at historic lows, where they've been for more than four years, until the U.S. unemployment rate drops to 6.5 percent.

Employers are expected to have added 185,000 jobs to their payrolls in June, according to economists polled by Reuters. That's slightly below June's count of 195,000 new positions.

The U.S. unemployment rate is expected to dip to 7.5 percent in July from 7.6 percent in June.

"July historically has been all over the place, in terms of employment. Factories often times do shutdowns in July, and there's turnover in agriculture," Evans said.

Analysts have worried that big gains in jobs numbers could prompt an early end to the Fed's bond buying, but stocks rose sharply earlier this month when June's payrolls far exceeded expectations.

While the jobs report is expected to be the biggest piece of economic news next week, the economic calendar includes data on gross domestic product and the Chicago Fed Midwest Manufacturing Index for June. The Institute for Supply Management's U.S. manufacturing index for July and monthly car sales will also be part of the mix.

EARNINGS SEASON'S SECOND HALF

With results already in from 259 of the S&P 500, the season has entered its second half.

But next week will still be one of the heaviest of the season, with 131 names from a wide range of industries due to report, including Time Warner Cable , Chevron , Coach , U.S. Steel and Allstate .

Stronger-than-expected results since the start of the season have pushed up the growth estimate for the quarter. Second-quarter earnings are now expected to have increased 4.1 percent, up from an estimate of 2.8 percent a week ago, Thomson Reuters data showed.

Revenue growth, at 1.6 percent as of Friday, has not been strong, but 56 percent of companies so far are beating expectations, above the 48 percent average of the last four quarters.

We are at all-time highs in a lot of these names, and I think this earnings season is supporting that," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management, which has about $13 billion in assets.

But she said that also means the market may be "vulnerable to some profit-taking."

(Wall St Week Ahead runs every Friday. Questions or comments on this column can be emailed to: caroline.valetkevitch(at)thomsonreuters.com)

(Reporting by Caroline Valetkevitch; Additional reporting by Doris Frankel; Editing by Jan Paschal)

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