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Dow-30 Earnings: Microsoft - First Quarter Fiscal 2013
Software giant Microsoft (MSFT - Free Microsoft Stock Report) reported revenue and earnings of $16.0 billion and $0.53 a share for its first fiscal quarter, versus our estimates of $16.9 billion and $0.60 a share. (Fiscal years end June 30th.) Although corporations continued with their adoption of Windows 7, overall PC demand was lackluster in the September period, which hampered the results in Microsoft's Windows and Windows Live and Microsoft Business segments. Nonetheless, the software vendor recorded $1.35 billion in deferred revenue in the quarter related to its Windows Upgrade Offer, Windows 8 Pre-sales, and Office Offer programs. Indeed, PC manufacturers seem to be taking great interest in the new operating system and productivity suite, suggesting that Microsoft will find a welcome place on the broad range of computing devices and platforms that are now and will become available. Elsewhere, business at the company's Server & Tools group was brisk. Revenue and operating income progressed nicely, reflecting the company's strong position in the datacenter and new product offerings. In addition, the financial results at the Online Services Division continued to improve. OSD's top line advanced, reflecting improved revenue per search, which, in turn, worked to narrow the group's operating loss. In the end, though, investors' reaction to the quarter's financial results is best characterized as cool.
Meanwhile, the formal introduction and general availability of Windows 8 and Surface, the company's entry in the tablet space, will take place on October 26th. Although the show is likely to make for great viewing, investors will be interested in how these products and the strategy behind them will play in the market place. At this juncture, the new operating system has gotten good reviews from those that are respected for their opinion. In addition, the associated app store seems to be taking shape, and should become more interesting as it evolves; linkages to social media, music, and entertainment are also pluses. For its part, Surface, is distinguished by the offering of a version of the Office productivity suite. Our sense is that this should extend the use of Surface and tablets utilizing Windows 8 from the more casual domain into the business environment, an arena where Microsoft has traditionally had a large advantage.
Adding it all up, we are optimistic concerning the prospects for Windows 8, Surface, and Microsoft's general strategy. Moreover, the Server & Tools group should continue to contribute nicely, and the operating loss at OSD should remain on the wane. Still, the current prospects for global economic growth do not inspire. Accordingly, we are making modest downward adjustments to our revenue and earnings estimates for fiscal 2013. Our top and bottom line targets are now $80 billion and $3.00 a share, reductions of $500 million and $0.05 a share.
About The Company:Microsoft Corp. is the largest independent maker of software. It develops and sells products for a wide range of computing devices. The company also sells the Xbox video game console. Revenue sources in fiscal 2012 were as follows: Microsoft Business, 32.6% of total; Windows & Windows Live, 24.9%; Server and Tools, 25.3%; Entertainment & Devices, 13.0%; Online Services, 3.9%; Other, 0.3%. Research & development spending as a percent of 2012 sales was 13.3%.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.