Microsoft Earnings Pile On To Market Losses

It’s been a down day for the markets. Microsoft (NASDAQ:MSFTposted earnings for its first quarter for the fiscal year 2013 that missed expectations and drove share prices down as much as 2.5 percent in morning trading on October 19.

Drivers

Overall revenues were down 7.8 percent to $16.01 billion. This downward movement was fueled by Microsoft’s Windows division, which reported a sales decrease of 33 percent for the quarter.

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However, Microsoft expects those numbers to pick up. “The launch of Windows 8 is the beginning of a new era at Microsoft,” said CEO Steve Ballmer in the earnings release. The numbers might back up his claim. Pre-sales for Windows 8, slated for release October 26, clocked in at nearly $800 million — 40 percent higher than comparable pre-sales for Windows 7.

Earnings per share dropped 7.9 percent year-over-year to 63 cents, below Thomson Reuters poll expectations of 68 cents per share.

“We saw the overall PC market decline this quarter in advance of the launch of Windows 8, and in part due to competitive pressures and the challenging macroeconomic climate,” said Bill Koefoed, general manager for investor relations at Microsoft.

Competition

The Apple (NASDAQ:AAPL) ecosystem continues to be alpha-predator in the market. The company is less threatened by recent reports of an ailing PC industry, with its dominant iPad and popular iPhone. That’s not to say that if the personal computer “dies” the company won’t feel the hurt. Apple is reportedly launching a new MacBook with its iPad Mini event next week. Microsoft’s upcoming Windows 8 launch will be complemented by the release of its Surface tablet, which will obviously enter the market alongside the iPad. Windows 8 seems to excel on touch screen devices, leading many to believe that the tablet could become a serious contender in a crowded market.

Apple is slated to release earnings on October 25.

Google’s (NASDAQ:GOOG) earnings snafu on October 18 saw its market cap dip below Microsoft’s, unwinding a recent milestone. The two companies will increasingly compete with software-as-a-service solutions. Google’s mail and document storage and processing services, as well as developing cloud services, are in many ways ahead of the curve. One reason Windows 8 is so notable is that it marks Microsoft’s head-first launch into bridging the space between the PC and mobile environments. Google’s already successful Android platform and incoming Chromebook give it a head start. However, massive pre-sale numbers and some pretty good reviews for Windows 8 could catch Google, which wobbled with its last earnings, off guard.

Tough macroeconomic conditions hurt all players involved. What will define tech companies moving into the future is how well they adapt to a landscape that responds rapidly to consumer interest and confidence, and industry innovations. Optimism and hesitation seem married to Microsoft.

Marching along, the relationship between Microsoft and industry players like Oracle (NASDAQ:ORCL) remains nebulous. Cloud and mobile strategies are claiming a lot of action, while enterprise solutions seem to be evolving from the mid-market out with players like Salesforce.com (NYSE:CRM). Microsoft will fight for both consumer market share and enterprise adoption.

Microsoft Earnings Recap

Results: Net income fell to $4.47 billion (53 cents per share) versus $5.74 billion (68 cents per share) a year earlier. This is a decline of 22.2 percent from the year-earlier quarter.

Revenue: Fell 7.9 percent from the year-earlier quarter to $16.01 billion.

Actual vs. Wall St. Expectations: Microsoft fell 12 cents short of the mean analyst estimate of 65 cents per share. It fell $2.1 billion short of the average revenue estimate of $18.11 billion.

(Earnings estimates provided by Zacks.)

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