Microsoft posted its first quarterly loss in its 26 years as a public company as it declared its struggling online ad business a bust and prepared for one of the
biggest product updates in its history.
The software company had warned two weeks ago that it would take a $6.2 billion charge in the April-June quarter because its 2007 purchase of online ad service aQuantive failed to help it compete with Google Inc.
The amount reflected the bulk of the $6.3 billion acquisition cost.
Including the big write-down on aQuantive, Microsoft booked a $492 million loss in the fiscal fourth quarter, or 6 cents a share. That compares with earnings of $5.9 billion, or 69 cents, a year ago.
Revenue rose 4 per cent to $18.06 billion.
Excluding the adjustment and the deferral of some revenue related to its upcoming Windows 8 operating system, earnings came to 73 cents per share.
The online ad business remains just a tiny part of Microsoft - comprising just 4 per cent of its annual revenue. Most of the company's sales come from its Office suite of productivity software, Windows operating system and, increasingly, computer servers.
Upbeat business software and server sales in the quarter helped offset a flat market for personal computers, which had put a damper on Windows sales. Taken as a whole, the software giant's results beat analyst expectations.
Shares rose 2.4 per cent to $31.39 in after-hours trading following the earnings announcement.
Microsoft's fortunes are now tied to the
October 26 release of Windows 8, the most extreme redesign of the company's flagship operating system since 1995.
Windows 8 will feature a new look and boast new technology that will enable the operating system to work on
touch-controlled tablet computers, as well as Microsoft's traditional stronghold of desktop and laptop computers.
In conjunction with Windows 8, Microsoft is planning to release
its own tablet, the Surface.
A revamped version of Office, which bundles word processing, spreadsheet and email programs, is also in the works. Earlier this week, Microsoft previewed how the next version of Office will work on tablet computers running on Windows 8.
The company was conservative forecasting how much the
product revamps will help drive revenue.
Chief Financial Officer Peter Klein told analysts that for the coming year, "We expect Windows revenue to be roughly in line with the PC market" which it said was flat in the last quarter and is expected to continue that way in the three months through September.
Even if Windows revenue is flat, that will be an improvement since revenue in the division has now dropped in five of the past seven quarters. It fell 13 per cent in the quarter to $4.1 billion.
Microsoft excluded from its forecast any extra Windows sales that would come from its Surface tablet, for which it gave no outlook.
Thursday's loss was the first for Washington-based Microsofit since the company went public in March 1986.
The $6.2 billion charge is a non-cash adjustment, which companies do when the value of their assets decline. Companies have to review their assets once a year, and the just-ended quarter is Microsoft's final one for fiscal 2012.
AQuantive was Microsoft's most expensive purchase at the time, and was supposed to help it mount a more serious challenge to Google in online ads.
But the online ad division continued to post losses - totaling more than $9 billion since the purchase, not including the charge.
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