Microsoft Results Disappoint After Hefty Surface RT Charge

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Microsoft has taken a hefty charge for its Surface RT tablet inventory as it misses Wall Street expectations

Microsoft has blamed the ongoing decline in the PC sector after it missed analyst estimates in its fiscal fourth quarter 2013 earnings.

Microsoft announced quarterly revenue of $19.90 billion (£13.06bn) for the quarter ended 30 June 2013. Operating income, net income, and diluted earnings per share for the quarter were $6.07 billion (£4bn), $4.97 billion (£3.3bn), and $0.59 (£0.39) per share respectively.

Surface Charge

These financial results include a $900 million (£591m) charge, or a $0.07 (£0.05) per share impact, related to Surface RT tablet inventory adjustments. Microsoft recently reduced the price of Surface RTs by $150 (£98) – from $499 (£328) down to $349 (£229).

However, excluding the Surface charge, Microsoft’s earnings were 66 cents (£0.43) per share, short of the 75 cents (£0.49) per share expected by analysts. The quarterly revenue of $19.9 billion (£13bn) also was short of analyst estimates of $20.72 billion (£13.6bn) the company was expected to earn for the quarter.

“While our fourth quarter results were impacted by the decline in the PC market, we continue to see strong demand for our enterprise and cloud offerings, resulting in a record unearned revenue balance this quarter,” said Amy Hood, chief financial officer at Microsoft, in a statement. “We also saw increasing consumer demand for services like Office 365, Outlook.com, Skype, and Xbox LIVE. While we have work ahead of us, we are making the focused investments needed to deliver on long-term growth opportunities like cloud services.”

Microsoft said its fourth quarter results also reflect the recognition of $782 million (£513m) of previously deferred revenue related to the Office Upgrade Offer.

Full Year Figures

Steve Ballmer - Shutterstock - © imagemakerFor Microsoft’s fiscal year 2013, the company’s revenue, operating income, and diluted earnings per share were $77.85 billion (£51.1bn), $26.76 billion (£17.6bn), and $2.58 (£1.69) per share. In addition, these financial results reflect the recognition of $540 million (£354m) of previously deferred revenue related to the Windows Upgrade Offer, and a $733 million (£481m) expense related to the European Commission fine.

“We are working hard to deliver compelling new devices and high value experiences from Microsoft and our partners in the coming months, including new Windows 8.1 tablets and PCs,” said Microsoft CEO Steve Ballmer in a statement. “Our new products and the strategic realignment we announced last week position us well for long-term success, as we focus our energy and resources on creating a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value the most.”

Divisional Performance

Microsoft Business Division revenue grew 14 percent for the fourth quarter and 3 percent for the full year. Adjusting for the recognition of previously deferred revenue related to the Office Upgrade Offer, Microsoft Business Division non-GAAP (Generally Accepted Accounting Principles) revenue increased 2 percent for the fourth quarter. Office 365 is now on a $1.5 billion (£985m) annual revenue run rate.

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