Microsoft: $19.90 billion in revenue for Q2 2013; $900 million charge for Surface RT

Microsoft has announced that for the second quarter of 2013 (which is considered the fourth quarter of 2013 in Microsoft's fiscal year) the company generated $19.90 billion in revenue, along with $4.97 billion in net income. Those numbers include a one time charge of $900 million which Microsoft says is due to "Surface RT inventory adjustments."

Microsoft's press release quoted the company's chief financial officer Amy Hood as saying that its result were impacted by declines in the PC market. However, Hood added, " ... we continue to see strong demand for our enterprise and cloud offerings, resulting in a record unearned revenue balance this quarter. We also saw increasing consumer demand for services like Office 365, Outlook.com, Skype, and Xbox LIVE."

The Windows division brought in revenues of $4.411 billion for the quarter, up six percent compared to a year ago, while the Business division generated $7.213 billion in revenues for the quarter, up 14 percent compared to the same period a year ago. The Server and Tools division brought in $5.502 billion for the quarter, up nine percent compared to a year ago.

Microsoft's Online Services Division reported revenues of $804 million for the quarter, up nine percent from the same period a year ago. The Entertainment and Devices Division generated revenues of $1.915 billion for the quarter, up eight percent from the same period a year ago.

These results are based on Microsoft's business division that were set up before the company's major reorganization that was announced earlier in July. Microsoft will hold a financial conference call at 5:30 pm Eastern time later today.

Source: Microsoft | Image via Microsoft

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31 Comments

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Quite impressive really when you compare it to others (Intel, IBM, etc) and when you keep in mind this reflects Microsoft entering a substantial new business, hardware. There were many complaints that Microsoft was too slow and too cautious with their entry into tablets. But it looks like it paid off. They didn't eff up.

Order_66 said,
Yes and no matter what happens, windows 8 is not to be blamed for anything, avoid doing that at all costs!

/s


I'm going to blame Windows 8 for the 6% YOY increase in revenue in the Windows division.

Go away.

Not really a bad report overall. Mostly it's just the write down for all those tablets they're discounting. The entire mobile market seems to be heading into a slowdown.

Whoa, awesome. All divisions are up. Most importantly, the Online Services Division lost 372 millions this quarter compared to the whopping 6672 millions it lost in Q4 2012. At this rate, it is gonna turn a profit by next quarter.

rich4a1 said,
Does it mean they have 6m units of Surface RT in the inventory?

I doubt it, from the start they had very low goals for the surface. Ballmer had said they planned to sell a few million. That's more like 2-3m at best. I think some more info is needed before we jump to conclusions on what they're talking about exactly.

GP007 said,

I doubt it, from the start they had very low goals for the surface. Ballmer had said they planned to sell a few million. That's more like 2-3m at best. I think some more info is needed before we jump to conclusions on what they're talking about exactly.

yea I highly doubt its all inventory like some people are saying. most probably from the price cuts, marketing,etc...

A write down is not necessarily on hard assets. It's often a reduction in the anticipated return on an investment. The AQuantive acquisition write down involved no hard assets or cash.

vcfan said,
probably 3 million,not 6. it costs around $300 to build. $900 million / $300 = 3 million

But that would mean that they expect to shitcan the entire inventory, which you know isn't going to be the case. They either wrote down in excess to make the next quarter look better (which would be highly suspect), or we're talking millions more units being written down by a smaller amount each.

no no,im merely correcting the math if he wanted to calculate how much inventory that is. I don't believe that's inventory at all. its from the price cuts,marketing,distribution,etc..

Spicoli said,
A write down is not necessarily on hard assets. It's often a reduction in the anticipated return on an investment. The AQuantive acquisition write down involved no hard assets or cash.

The aQuantive writedown was of goodwill, from the acquisition.

With an internally-developed business such as Surface RT, there's no goodwill on the balance sheet. What would they have written down? Marketing expenditures? The cost of breaking contracts with suppliers?

TomJones said,

The aQuantive writedown was of goodwill, from the acquisition.

With an internally-developed business such as Surface RT, there's no goodwill on the balance sheet. What would they have written down? Marketing expenditures? The cost of breaking contracts with suppliers?

I think the point was that it's not just supply, you can't look at it and say "oh they have $900million worth of Surface RTs going nowhere." I think it's a mix of different things together that they decided to take a hit on now, in one big go, instead of spread out over the next year. Plus they have the new reorg, so next time they report they'll be doing so differently. The reorg probably added to why they decided to take a big write down now.

Ouch! Nowhere near the Wall Street expectations - but enterprise is doing very well. Unsurprisingly the Windows division came in with a hugely reduced operating income of $1.1 billion, down from $2.42 billion a year ago.

Time to scrap RT? Or should they carry on with the next hardware iterations? Surely it's just a matter of time - RT clearly isn't selling anywhere near enough units to make it viable for much longer.

Harold Camping said,
Unsurprisingly the Windows division came in with a hugely reduced operating income of $1.1 billion, down from $2.42 billion a year ago.

Did we read the same article?
The Article said,
The Windows division brought in revenues of $4.411 billion for the quarter, up six percent compared to a year ago, while the Business division generated $7.213 billion in revenues for the quarter, up 14 percent compared to the same period a year ago

Harold Camping said,
Unsurprisingly the Windows division came in with a hugely reduced operating income of $1.1 billion, down from $2.42 billion a year ago.

unsurprisingly? I highly doubt that you predicted that they were going to write down $900 million from the windows division.

Operating income is not the same as revenue - it is the difference between revenues and operating expenses. The fact that it's fallen so much is very significant. Amy Hood, Microsoft's CFO, admitted that the results were "impacted by the decline in the PC market". Also, Wall Street was anticipating fourth quarter earnings of 75 cents a share on revenue of $20.73 billion. For the year Microsoft reported earnings of $2.58 a share on revenue of $77.85 billion.

Harold Camping said,
Operating income is not the same as revenue - it is the difference between revenues and operating expenses. The fact that it's fallen so much is very significant. Amy Hood, Microsoft's CFO, admitted that the results were "impacted by the decline in the PC market". Also, Wall Street was anticipating fourth quarter earnings of 75 cents a share on revenue of $20.73 billion. For the year Microsoft reported earnings of $2.58 a share on revenue of $77.85 billion.

Fallen? Overall profit is up at 21,863 millions, compared to just 16,978 in FY12.

I'm talking about the Windows division specifically, not the company as a whole. The enterprise divisions have done extremely well - Servers and Tools had fourth quarter operating income of $2.35 billion on revenue of $5.5 billion. The business division had operating income of $4.87 billion on revenues of $7.2 billion. Compare and contrast these figures with the Windows division.

Harold Camping said,
Operating income is not the same as revenue - it is the difference between revenues and operating expenses. The fact that it's fallen so much is very significant. Amy Hood, Microsoft's CFO, admitted that the results were "impacted by the decline in the PC market". Also, Wall Street was anticipating fourth quarter earnings of 75 cents a share on revenue of $20.73 billion. For the year Microsoft reported earnings of $2.58 a share on revenue of $77.85 billion.

what are you talking about? the $900 million is not revenues. its a $900 million loss, probably from price cuts,inventory and other expenses. operating income is profit - expenses. how does $900 million fit in as revenues? it doesn't make sense what youre saying.

And yes they did miss wall street estimates, but wall street wasn't predicting microsoft would do the writedown,and their estimates are not based on that. take away the writedown,and things look pretty close to me.

The news is actually bad across the company Why? Because all of the business units missed the company's prior expectations. It's the fourth quarter in a row that MS have missed their guidance for the major segments of their business.

For example, even if we take the successful “server and tools” division which grew 9% in the period. The problem is that Wall Street had anticipated growth of 12%. These are the sort of issues that shareholders get frustrated by.

One final thought (I'm in the UK and it's getting late) - there was this slightly odd statement: "Windows Phone revenue, reflecting patent licensing revenue and sales of Windows Phone licenses, increased $222 million."

That means Microsoft lumped the money it makes on mobile patents, largely from Android/Linux device makers, in with Windows Phones sales. It'd be interesting to know just how much of that $222 came from Android patent license agreements.

Harold Camping said,
One final thought (I'm in the UK and it's getting late) - there was this slightly odd statement: "Windows Phone revenue, reflecting patent licensing revenue and sales of Windows Phone licenses, increased $222 million."

That means Microsoft lumped the money it makes on mobile patents, largely from Android/Linux device makers, in with Windows Phones sales. It'd be interesting to know just how much of that $222 came from Android patent license agreements.

Does it matter? Collecting money from Android is a legitimate part of their business. They practically birthed the tech in Android, why shouldn't they be able to count it?

Harold Camping said,
The news is actually bad across the company Why? Because all of the business units missed the company's prior expectations. It's the fourth quarter in a row that MS have missed their guidance for the major segments of their business.

For example, even if we take the successful “server and tools” division which grew 9% in the period. The problem is that Wall Street had anticipated growth of 12%. These are the sort of issues that shareholders get frustrated by.

It's not bad - they increased revenue in every sector and increased overall profit. If they've missed expectations for four straight quarters it means people's expectations are wrong and will eventually fall in line. I don't see how any part of this article can be taken negatively, at least not in the long term.

Timothy Gamble said,

Does it matter? Collecting money from Android is a legitimate part of their business. They practically birthed the tech in Android, why shouldn't they be able to count it?

It doesn't matter to the bottom line, but as Harold said, it *is* interesting.

I mean ... isn't at least a tiny bit ironic to think that Microsoft may earn more from Android than from Windows Phone.

Harold Camping said,
Time to scrap RT?

They just aren't "selling it right" or maybe you just "aren't buying it right"

See, Microsoft lambasted its OEM's saying they were responsible for poor Windows 8 sales, due to their lacklustre hardware.

Karma's a bitch eh