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Tech Check
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Robert Scoble |
Microsoft [MSFT
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] shares are climbing tonight possibly as a kind of relief rally that the news wasn't as bad as investors had feared.
Couple that with an ongoing reductions in operating expenses and you get a company in rally mode.
Microsoft reported 33 cents a share versus the 39 cents Wall Street expected, but that includes 6 cents in various charges like severance and loss on investments, so the actual apples to apples number would be an inline 39 cents a share. That news comes on revenue of $13.65 billion, while Wall Street was looking for $14.16 billion.
Looking at the company's individual business units, Microsoft came up short in Client revenue with $3.4 billion vs. the $3.45 billion anticipated; in Servers, Microsoft slightly beat expectations with $3.46 billion against the $3.45 billion projection; the Business Division was also light, $200 million less than analyst projections at $4.5 billion. The bright spot was in Entertainment and Devices, home of Xbox and Zune, with Microsoft posting $1.567 billion in revenue vs. the $1.47 billion anticipated by analysts.
The dismal news comes once again in the company's sputtering online business.
Brendan Barnicle at Pacific Crest Securities expected $832 million; Microsoft reported $721 million. It's the most glaring piece of evidence yet that this company must come up with an aggressive plan for an online strategy if it expects to have any chance at all unseating Google, which posted over $1 billion in profits on nearly $5 billion in revenue for its latest quarter. If there was ever a good argument why Microsoft desperately needs Yahoo, and why after Yahoo reported its earnings earlier this week why Yahoo [YHOO
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] might desperately need Microsoft, this is the report to beat that drum.
So why are shares climbing? Pacific Crest's Barnicle says it's a simple case of cost-cutting, with operating expenses in the company's third quarter $150 million less than what investors were expecting. Further, Microsoft did offer operating expense guidance for the rest of the year, the only guidance that the company is providing, between $26.7 billion and $26.9 billion. The company had previously offered a figure of $27.4 billion. Such a significant reduction will likely translate into improved EPS and margin performance and that, Barnicle argues, could have a meaningful effect on its share price.
In fact, it already is with Microsoft enjoying a 4 percent gain after-market. Still, beyond opex, it's clear that the overall economy is taking its toll on Microsoft, and that its online strategy, based on the report today, is in tatters.
Questions? Comments?
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