Microsoft's fiscal fourth quarter was ugly. No two ways about it.
The company missed on the top by a staggering $1.25 billion, reporting $13.1 billion against the $14.38 billion consensus.
It's an enormous miss, and stunning to many analysts covering the company.
Microsoft also missed on the bottom line, reporting 34 cents versus the 36 cents Wall Street was looking for. Still, to be fair, you could make the argument that Microsoft actually met expectations because it took 2 cents worth of impairment charges for legal, severance, inventory and other stuff.
Still, Microsoft shares have been on such a run that a miss like this one is a head-scratcher.
And it gets worse: Each of the company's key business units, save for its Online unit, which is so ironic, missed, and badly. Client revenue came in at $3.1 billion, $200 million light; Server and Tools, $3.5 billion, or $300 million less than expectations; Online services tallied $731 million against the $725 million anticipated; the Business Division, so critical to the Microsoft story and home to its Office products, was almost $500 million less than expected, and the Entertainment and Device division, home to Xbox and Zune, was more than $300 million less than projections.
That's the bad news. But there's an argument to be made here that investors may want to consider snapping up Microsoft on the dip, says Pacific Crest's Brendan Barnicle. It's clear, he says, that customers are holding off purchases until Windows 7 is released; same with business customers who are likely postponing Office buys until the new version comes out early next year.
The Microsoft miss is a mess, especially after shares jumped better than 23 percent year to date. But a little perspective, and a little understanding of the buying cycle, not to mention what's in the company's pipeline -- and still the potential of a deal with Yahoo, and it seems these shares become moderately compelling as they trade at a discount. I think over the next few days we'll see Microsoft begin to inch their way back.
But with such sizeable misses in every one of the company's most important units, this company should have been doing something to manage expectations a whole lot better than they did. Ballmer's been out there speaking at various events, and something should have been communicated to prepare the Street, and the company's legions of investors that things are still tough out there.
I'd also make the argument that Microsoft's problems on the quarter are hardly worthy of bellwether status, and are likely its own. Apple, IBM, Google, Intel, eBay, Yahoo all beat.
Momentum for a turnaround is out there. And it's working. And I'd also point out that the turnaround momentum is exactly what stalled Microsoft's performance on the quarter: Customers aren't necessarily holding off purchases because of the economy; they're doing so because Microsoft is getting set to release a bunch of new stuff. This has happened before. It'll happen again.
Today's spooky for Microsoft investors, yes. But the sun will come out tomorrow.
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