Online Ad Stumbles Tarnish Microsoft's Record Q4

Server and business software divisions help drive record revenues while an accounting charge against its online advertising division wipes away profits.

Thursday, Microsoft announced that it had generated a record $18.06 billion in revenue during Q4 2012, a 4 percent year-over-year improvement. While a record for the software maker, it fell just shy of analyst estimates of $18.13 billion. And on paper, the software maker posted a rare loss.

Microsoft reported losses of $0.06 per share, or $492 million, due, in part, to a previously announced $6.7 billion accounting charge attributed to its underperforming online ad operations.

The goodwill write down of its Online Services Division was related to the $6 billion acquisition of aQuantive in 2007, a move that did little to challenge Google's dominance in the online ad space. A separate charge of $540 million in deferred revenue for the company's Windows 8 upgrade offer also put a crimp in Q4's earnings.

Excluding the charges, Microsoft earned $0.73 per share for the quarter, handily beating estimates of $0.62. For its 2012 fiscal year, the company reported $73.72 billion in revenues, a 6 percent increase over 2011. Profits dipped to $21.7 billion from $27.1 billion in 2011 due to the one-time charges.

Back to Business

Brisk business software sales continue to add to Microsoft's bottom line. The Server and Tools division posted revenue gains of 13 percent in the quarter and 12 percent for the full fiscal year. Microsoft credits strong sales of Windows Server, SQL Server and System Center.

"As I look back, when I first became CFO of Server and Tools in 2003, it was a $7 billion business," stated Peter Klein, Microsoft's Chief Financial Officer, during the earnings call. "Since then, it has grown to nearly $19 billion in revenue and the opportunity for future growth has never been better."

The Business software unit saw revenue grow 7 percent for both the fourth quarter and the full year, propelled partly by healthy sales of Office 2010. Microsoft claims that "Office is now installed on more than 1 billion PCs around the world."

Despite the pall cast on the Online Services business unit by aQuantive, Bing's steadily improving share of search traffic helped the division grow revenues by 8 percent during the quarter and 10 percent for the year.

Consumers Cool to PCs, Skype Rings up Revenues

As seen in Q3 2012, growth in the consumer space is proving elusive; a situation that the company hopes to reverse with the upcoming launch of Windows 8. The touch-enabled OS, along with tablets that support it, will go on sale on October 26 at a lower price than its predecessors.

In Q4, the Windows and Windows Live division suffered a decline of 13 percent in revenue and 3 percent for the entire year due to flat PC sales. On a non-GAAP basis, and accounting for the Windows upgrade offer, the revenue shortfall narrows to 1 percent for both Q4 and all of FY 2012.

Revenues at Entertainment and Devices, which now includes Skype, grew 20 percent in Q4 and 8 percent for the year. Microsoft acquired Skype last year for $8.5 billion. Today, the bet seems to be paying off as the popular Internet voice and video communications software is being credited for increasing revenue for the division.

Pedro Hernandez is a contributing editor at InternetNews.com, the news service of the IT Business Edge Network, the network for technology professionals. Follow him on Twitter @ecoINSITE.




Tags: Microsoft, enterprise software, earnings, online advertising


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