Microsoft reports first quarterly loss ever

http://marketday.msnbc.msn.com/_news/2012/07/19/12837611-microsoft-reports-first-quarterly-loss-ever?lite

by sbashyal • 14 years ago

272 115 14 years ago

marketday.msnbc.msn.com

Wouldn't have happened had they not wasted 6 billion on aQuantive trying to buy their way into search. Google paddled that bottom.

barista• 14 years ago

buy their way into ads you mean. They bought their way into search via the Yahoo deal. and of course Google bought their way into search by paying firefox and others who distributed the google toolbar... everybody tries to do it I guess

tysonjennings4• 14 years ago

"They bought their way into search via the Yahoo deal."

That has only really bore fruit in the US though. MS have less than 5 percent share of search worldwide.

"Google bought their way into search by paying firefox"

Google actually had a larger share of the search market prior to the Firefox deal.

beagle3• 14 years ago

> Google bought their way into search by paying firefox and others who distributed the google toolbar.

Google already owned search when firefox finally had nontrivial market share. They did not "buy their way into search", the transformed the market with an excellent product (Google altavista, the undisputed king until Google came).

At some point, they started paying e.g. mozilla to maintain their position.

But they reached that position based on merit. (A rather uncommon event, unfortunately).

recoiledsnake• 14 years ago

Funny how Eric Schmidt thinks Bing is a huge threat to Google. The corporate spin at the hearings is just too ironic.

http://cnnmoneytech.tumblr.com/post/10483503055/eric-schmidt...

tysonjennings4• 14 years ago

Have you considered the possibility that Schmidt the man actually believes that Bing is competitive with Google and sees this as something to rally against? How is that lying* and spinning? I would consider an executive to be remiss to arrogantly assume that their product is better no matter what. The fact that Schmidt isn't slamming the Bing effort and is actually offering praise should be seen as a good thing. Which CEO was it that laughed at the iPhone when it was released? You seem to be consumed by hate.

*recoiledsnake originally had the word "lying" in his comment. I just noticed he edited that out.

nostromo• 14 years ago

Reminds me of Microsoft's investment in Apple in 1997...

"There was some suggestion that Mr Gates may be anxious to keep Apple afloat to forestall a scenario where, following an Apple demise, a virtual monopoly hold by Microsoft on the software market would inevitably attract negative attention from fair competition regulators in Washington."

http://www.independent.co.uk/news/business/apple-grabs-150m-...

tsotha2• 14 years ago

The biggest danger for a company the size of Google or Microsoft is complacency. Bing may indeed be a big threat to Google in the long run.

sbashyal• 14 years ago

Finally it is clear that Apple's record profit is at Microsoft's expense.

Note that some major acquisition costs are responsible for the loss this quarter. Also given the right moves Microsoft seems to be making (for e.g. Surface announcement and Low pricing of the Windows 8 upgrades), it will be interesting to see what direction it takes from here onwards.

jsm386• 14 years ago

This loss is b/c of the aQuantive write down. This loss has nothing to do with Apple (not to say Apple's success isn't influencing what Microsoft is doing.)

From article: "Earlier this month, the company said it was taking a one-time charge of $6.2 billion, almost exactly the amount it paid for aQuantive, an online advertising company it bought in 2007 for $6.3 billion."

dustingetz• 14 years ago

> Finally it is clear that Apple's record profit is at Microsoft's expense.

this is not clear to me at all

Zenst2• 14 years ago

Given the number of people I know who use iTunes on windows and have greif so think about getting a Mac instead is only equaled by the number of people who do music and saw apple buy up the good players software and make the mac the more robust platform.

But I bet Office runs better under windows than it does under osx, its the way - code bitching, just hate it.

veb• 14 years ago

Dunno. I prefer Office on OS X, seems so much faster and easier to use. But that's just me.

eru• 14 years ago

MS Office runs well under Mac, and some people I know actually prefer the OS X version.

megaman821• 14 years ago

Microsoft had record breaking revenues for this quarter. I doubt Apple's record profit had little do with anything in the world of Microsoft.

cooldeal• 14 years ago

And the stock is actually up after hours. Go figure.

Edit:

"The server and tools unit delivered fourth quarter revenue growth of 13 percent and the business division, which features Office, was up 7 percent. Microsoft's entertainment and device division saw revenue jump 20 percent largely because it now includes Skype."

gibybo• 14 years ago

If stocks moved up when earnings were good and down when earnings were bad, it would be pretty trivial to game the system and double your money every month or so. The reason is that quarterly earnings are not that hard to predict - everyone knew well in advance that Microsoft was going to report a loss this quarter, for example. What they didn't know is exactly how much it was going to be, so they bought and sold based on their best estimates. It turns out this quarter they estimated that the earnings were going to be a little worse than they actually were, so the price corrected itself when the real amount was announced.

seanmcdirmid• 14 years ago

Investors are not stupid, they have their own discounts or stock targets in mind. The price of a stock will always adjust one way or the other depending on new information; "not as bad as I thought" or "not as good as I hoped" can cause stock rise on negative results and stock falls on positive results. If you want to game the system, you need to commit fraud and inject misleading information into the system, I hear this happens quite often.

tsotha2• 14 years ago

So they took a big chargeoff on an old mistake so they didn't have to pay taxes on a great quarter? That's what it looks like to me, anyway.

tomkarlo• 14 years ago

GAAP earnings are not necessarily the same as earnings for taxes. IANA tax lawyer, but I don't think you get a tax break on the write down unless you shut down the acquired business entirely. Otherwise it would be too easy to game your taxes simply by declaring these kinds of goodwill write downs.

Zenst2• 14 years ago

I can't help but feel that they are leveling the books on any bad or potentual bad area's and might even put all the Win8 production costs into that quarter as well. Motivation being that you have win8 and other goodies comming out and your now in a more comfortable position to imply look the news windows 8 must be good as we have not made a lose this time. That is nomater how well sales actualy go. I suspect the upgrade price is tempting for people to try dual booting it as a alternative to there current flavour of windows choice and trying it out. But clearing out any damaging impact onto the accounts and bunderling them into one bad month prior to your new OS will only help make the new OS seem better that it may or may not be. This and cheap upgrade price I suspect I can see how the next quarter goes and how that can only help promote windows 8 at a share level as apposed to user level. Which they cater for with a cheap upgrade price. Also better to get a bad period out of the way now before RIM falls as the bad market internet will suddenly all turn onto Microsoft as its next target to say is doomed. Sad how markets work nowadays.

peteysd• 14 years ago

How does Steve Ballmer still have a job? I don't think that you could find a less inspirational, more pointy-haired boss tech executive.

Microsoft needs another visionary at the helm, or it will never make a comeback.

Achshar• 14 years ago

The company was in bad time, now the scene look much better. With windows 7 a success and all the enterprise growth, with Xbox and windows 8, they are in a much better position. Although I am not nearly qualified enough to comment on Balmer's performance as a multi-billion dollar company's CEO, but he seems to do fine. Bill Gates set the bar high for Steve, and weather Steve under-performed or not remains a matter of speculation.

Tyrannosaurs2• 14 years ago

Doing fine?

The MS share price has underperformed both the NASDAQ and the Dow Jones since he took over and a company that had never posted a loss now has.

The Xbox has lost money over all time (if you include initial costs), the Zune failed, Windows 8 is yet to be released. Despite massive investment last time I checked their on-line services division (give or take 400 million users) still lost money.

And they've gone from being the tech company you couldn't ignore to one that you can.

The only reason it looks fine is that Windows and Office keep bringing home the bacon but with the declining PC market (except Macs) and the rise of the smartphone and tablet markets (in which MS are currently, roughly, nowhere), how long will that be for?

vibrunazo• 14 years ago

And before someone comes with the "but microsoft doubled its share values during Ballmer". The argument here is that, with microsoft's dominant incumbent position, a monkey would have tripled it.

xfax3• 14 years ago

Where can I get such a monkey?

Kiro• 14 years ago

I love Steve Ballmer and I'm not alone.

marekmroz• 14 years ago

I am sure Steve Ballmer also loves Steve Ballmer.

forgottenpaswrd• 14 years ago

Microsoft has been pouring money onto everything until they monopolize it. It worked really well and annihilated a lot of competitors by the way.

I remember the times Microsoft will literally buy you to develop for the xBox or DirectX. I was there and then I saw the people that got bought to say that they felt "trapped" and could not get out from MS tech.

But as new companies with big pockets got into the game, first Google, then the new Apple and then Facebook, the last one with so much money and not really knowing what to do with it, the game did not worked as well as before.

The Microsoft Zune did not work out, Life, Bing and now Lumia are not working out as expected, even after pouring billions from their desktop and Office monopoly.

javert2• 14 years ago

A nice concrete example of the principle that companies cannot manipulate the market in the long run.

commandar2• 14 years ago

Well, two points here.

First, Microsoft has had to play pretty carefully in the past decade to make sure that they don't draw any more antitrust ire.

The other thing would be that they don't have to manipulate the market forever, just long enough to lock out competition.

A perfect example of this in the tech world would be Intel.

They did everything they could to keep AMD locked out of vendors like Dell for years, even when AMD had a superior product. Fast forward a few years, and not only is Intel still the dominate player in the market, but their lead in process technology makes it extremely difficult if not impossible for anyone else to compete. For example, Ivy Bridge has a slightly higher transistor count than AMD's Bulldozer, but has a die roughly half the size of the AMD part.[1] That means that even if AMD was producing a part that performs competitively with Intel, they're going to have difficulty competing with them on price since Intel can crank out more dies per wafer.

Obviously it's entirely speculative whether AMD would have been able to capitalize on increased market share and keep up with Intel long term but Intel doesn't really need to manipulate the market like they used to anymore since they've managed to put themselves in such a comfortably entrenched position.

[1] http://www.anandtech.com/show/5771/the-intel-ivy-bridge-core...

wpietri2• 14 years ago

Or an example of seeing what you want to see.

Microsoft still has an effective desktop OS monopoly. Last I bought a computer, I still had to pay a Windows tax. So their long-run market manipulation seems to be alive and well.

It's true that they haven't been able to dominate new markets effectively. But that says more about the volatility of technology and Microsoft's fear of another Department of Justice beat-down than it does about any principle of economics.

The Internet was a once-a-century disruption. (One that could well have been throttled in its cradle had AT&T not been broken up by government intervention.) Counting on lightning strikes like that, rather than robust regulatory support of competition, strikes me more as a religious outlook than a practical one.

caycep• 14 years ago

i'm just getting to that chapter about Standard Oil and its competitors in The Prize...

pm90• 14 years ago

>The Microsoft Zune did not work out, Life, Bing and now Lumia are not working out as expected

I wonder if this spells the end of Nokia as well? That would be really very sad!

ditoa• 14 years ago

Why would it be sad to say goodbye to Nokia? Companies come and go and all of Nokia's problems today are of their own making. Sure they made some nice phones 6+ years ago but they could have easily of competed with Apple, hell Google managed to do it without even having a damn phone they just made the Android platform and worked with other companies to make the devices. Nokia should have embraced Android from day zero, if they had they would most likely be the number one Android phone supplier instead of Samsung.

nvrmor• 14 years ago

Nah, it wouldn't be sad. Nokia gave us 300 babies before it died. Check out all these start-ups! http://www.zdnet.com/inside-nokia-bridge-how-nokia-funds-ex-...

teyc2• 14 years ago

Given how MS effectively osborned Nokia's flagship Lumia series by refusing to upgrade it to Windows 8, Nokia has no credibility left.

(Note: I don't own a Lumia, and I'd be wary now)

Phone contract runs for up to three years, and people who paid for the top-of-the-line phone are going to feel regret every time they make a call for the next three years. From a reputational standpoint, Elop has burned his platform another time.

ChrisNorstrom3• 14 years ago

Your post just reminded me that a strategy will not work forever. Competitors and the market adjust around it to restore balance. I guess the same goes with companies as it does with nature, evolve or die.

politician• 14 years ago

Counter-examples aplenty.. Ma Bell begets today's AT&T/Verizon duopoly. Standard Oil begets 7 of the world's largest companies after Apple.

Uchikoma• 14 years ago

I loved it when Microsoft tried to buy Academia. We were in Cambridge and in the evening the bar keeper in one of the student buildings where we slept used to say: "Drink the most expensive stuff, Microsoft is paying for everything."

Didn't help though, I didn't work on MS technologies.

akshat• 14 years ago

2 take aways from this:

1> Microsoft continues to place big bets on markets which matter. It is not sitting on fancy profits. 2> It has a terrible management team.

xfax3• 14 years ago

Sensationalist title much?

From TFA: "Analysts were expecting a $5.3 billion profit for the quarter, but that was canceled out by an even bigger loss on a five-year-old acquisition."

No, analysts were not expecting a $5.3B profit before the report; if they were they should probably not be in their jobs anymore. The after-hours price of MSFT shows that this news was already priced in and the loss was actually smaller that what was expected.

Geez.

dclowd9901• 14 years ago

With these kind of common-sense oversights, I often wonder if many web reporters actually read the shit they shovel out.

debacle2• 14 years ago

Web reporting has very much become first-to-market, so I doubt it.

ricardonunez• 14 years ago

Agreed about the sensationalist title. Most people didn't watch the earnings call or read the article. With the huge write down it was more than expected some loss. People are just eager to comment without knowing.

beedogs• 14 years ago

How the hell is a factual title "sensationalist"?

Please, enlighten me.

TheCondor• 14 years ago

A bit sensationalist but it's also pretty darn remarkable. It's never happened before

Roboprog• 14 years ago

I wonder why MS decided to take the $6B write-down at this moment (from a 5 year old "investment") to engineer the report as a "loss"?

jacalata• 14 years ago

yea. From further down the page on HN: "Microsoft expected to post first quarterly loss".

einhverfr2• 14 years ago

There was one thing I noticed from the report.

Windows and Windows live revenues were down. There is a footnote which that this includes a reduction for deferred income due to rebate programs, but even if you add that back in, Windows revenue is still down.

However, it gets stranger. Windows revenue + unearned income is higher than it was a year ago, though not by much compared to other business units. So it is very hard to say what it actually means.

petercooper• 14 years ago

Sure, although primarily down to a gigantic $6.2bn writedown instead of any crash in Microsoft's overall fortunes. Best to take a bath now and miss the mark big style on an otherwise lacklustre quarter and then proclaim the Windows 8 revenue quarter later in the year as a bounce back.

jarek• 14 years ago

Discussion earlier today with 75 comments: http://news.ycombinator.com/item?id=4266155

mckilljoy• 14 years ago

Microsoft has one of its best quarters ever -- revenue is up and growing on all their major devisions -- but end up taking an accounting loss (and tax credit, I assume?). Kudos to the accounting team for that one!

purephase2• 14 years ago

It was intentional. They used a good quarter to shoulder the write down of a acquisition. The accountant/lawyers know what they're doing.

PufferBuffer• 14 years ago

Just because you know you're going to suffer a huge loss doesn't justify the loss itself.

crag2• 14 years ago

Say what you will about MS, but compared to Apple, Google, Oracle, or most other software companies, MS treats it's developers like gods.

I can not think of any other company that pays so much attention to it's developer community. I know, many around here may not have experience with as an MSDN member, but I do.

And trust me, having to deal with the likes of Apple AND Google, I miss MS' developer programs terribly.

muhfuhkuh• 14 years ago

And, yet, you seem to be talking about developing for them in the past tense.

There's a reason why Apple and Google are dominant now, and it's not just marketing, luck and timing. They've built fertile marketplaces that (especially) independent developers can leverage to create cottage industries if not empires, instead of simply make a living doing VBA and VC++ CRUD applications.

Oh, XNA and C# may be truly saner to handle than Cocoa and Java, but who truly gives a damn when you can't keep the lights on with your .exe file on Windows.

st3fan• 14 years ago

You mean like in this article?

http://arstechnica.com/gaming/2012/07/microsoft-comes-under-...

crag2• 14 years ago

An unusual example. But noted.

Want me to link to the "thousands" of disgruntled articles about Apple's or Oracles' developer relations?

I left out Google, cause they do a hell of a better job in that department than Apple does.

Look I know I'm bashing Apple and Oracle. Cause right now, those are the platforms what I'm working in. But I've been an Apple fan boy for years. Ever since my first Power Macintosh (back in the day). And Apple has never had good relations with it's developers. But today it's the worse I've ever seen.

But not like most of have a choice. We write for where the masses are. And right now, Apple is everywhere and in my case, Oracle too. I just wish, sometimes they'd (Apple mostly) remember what it was like when they were starving. ;)

marshray4• 14 years ago

> MS treats it's developers like gods.

Not anymore they don't.

http://www.reddit.com/r/programming/comments/u3pqj/microsoft...

http://www.reddit.com/r/programming/comments/v3vi8/targeting...

http://www.zdnet.com/blog/microsoft/microsoft-quietly-cuts-n...

http://arstechnica.com/gaming/2012/07/microsoft-comes-under-...

mittermayr• 14 years ago

I just wanted to add a few more words to this from my experience with working at Microsoft and why I think people should seriously calm down more on Microsoft. http://mittermayr.tumblr.com/post/27582543470/microsoft-the-...

zem• 14 years ago

that just goes to show that quarterly accounting is basically a flawed metric

ars• 14 years ago

pedalpete• 14 years ago

I'm more curious about the timing of the write-down. Are they taking the write-down now, in an attempt to put the Microsoft of the last decade to rest as they prepare for the new Windows 8 lines?

How does company marketing influence these decisions?

Was their a financial reason to take the write-down in one large chunk? Or within a certain timeframe?

thisismyname• 14 years ago

Steve Jobs said it best. They just don't have any taste and in a world where people will pay a premium where taste has been considered when products are being developed (apple, tesla, etc), companies like MS will be left in the dust.

drzaiusapelord• 14 years ago

Does taste mean not being able to understand what the aQuantive writedown is about?

Also, a mass produced phone built in China and sold in Walmart is a lot of things, but tasteful it is not.

chris_wot2• 14 years ago

Does taste mean not being able to understand what the aQuantive writedown is about?

Excellent point...

Also, a mass produced phone built in China and sold in Walmart is a lot of things, but tasteful it is not.

... terrible point!

nkp007• 14 years ago

Technically accurate, but the headline is misleading. The loss was because of a non-cash write-off of a transaction made a few years ago (2007-aQuantive).

Microsoft's core businesses, especially Office, are humming along. The franchise is pretty strong and the overall company is a cash generating beast.

kirillzubovsky• 14 years ago

Putting aside Microsoft's current financial performance, and the fact they still have stockpiles of cash in the bank, I think they are doomed. It might take them 20 more years to fail, but unless they radically change, they will fail.

In the last few months I had a chance to meet some folks from Google, Facebook, Apple and Microsoft. Some are my friends and some I've only met a few times. The first three companies seemed to have retained a ton of engineers that are hard working, driven, passionate about their products and their field. Meanwhile, I only met 1 person at Microsoft who truly was excited about being at MS. Everyone else, who was passionate, left MS either a few years ago or just recently.

You may think that my sample size is too small, but I tend to trust the gut feeling. What saw at MS was a company full of good people, but no one in particular cared about the success of the company. They were all there because it was a good job, a stable pay check, maybe even an educational experience. Meanwhile, folks I got to talk to at Google and Facebook and particularly at Apple were all committed to the cause, hungry to outsmart and outdo their competition. I think that speaks to the company culture and culture speaks to success.

All said, I think MS is doomed because they got too comfortable, too used to the easy money. Microsoft is really good at piloting a massive ship that slowly and steadily moves through the deep waters. But, as the waters are drying, they may just get stuck. To continue prospering, Microsoft needs to innovate, to reinvent themselves, to be agile again. They may get lucky and acquired the next big thing, which will bring them prosperity for years to come, but they may not and if they don't, they will be toast at the current state of affairs.

Lastly, this is a lesson to all of us. If you want your company to succeed, you cannot get comfortable. Like Steve Jobs said in his biography, you have to cannibalize yourself or your competition will do it for you. Your and your company has to keep running the marathon as if you have just started the journey.

Agree with me, disagree with me, bash me for not believing in Microsoft, that's okay. All I know, I will be sure to run this marathon fast and smart and I won't let my company to slow down and get on the death spiral. Come, run along, we'll have a good time.

marshray4• 14 years ago

> Microsoft needs to innovate, to reinvent themselves, to be agile again

But MS was never particularly innovative. Seriously, how many significant innovations did they come up with?

> All I know, I will be sure to run this marathon fast and smart and I won't let my company to slow down and get on the death spiral.

:-)

lionhearted• 14 years ago

It wasn't an operating loss -- it was a writeoff of a bad investment. They took the loss right now, but their cash position didn't change. Just, their reported income and taxes due got lower.

Still significant a bit, but much less than an operating loss instead of a writeoff would've been.

einhverfr2• 14 years ago

Hard to say what this means.

Revenue is up on the whole except Windows, where it is down slightly even before the deferral.

Expenses are up much more, resulting in the loss. It isn't clear what they are spending on though.

Moreover cash income is up. Even Windows grew when you add revenue to unearned cash.

This tells me some interesting things:

* Orders are up, fulfillment is up everywhere except Windows where orders are up and fulfilment is down even before adding in the deferral.

* Microsoft's spending us significantly up.

Microsoft reports first quarterly loss ever

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