Microsoft follows Apple's lead -- when have you heard that before? -- reporting a good, but not good enough, quarter. And investors are taking profits off the table.
Microsoft did beat Street expectations on the bottom line, reporting 47 cents, or 3 cents better than consensus. That's good news on a lighter than expected top line of $14.45 billion against the $14.49 billion expectation, which is a bit of a surprise given the big run these shares have seen in recent weeks, and the huge growth Microsoft has enjoyed in each of the previous two quarters.
So, where was the weakness? That's the issue.
Four of Microsoft's top five revenue generators all came in light. Client ($4.025 billion), Server and Tools ($3.255 billion), Online Services ($845 million), and the Business Division ($4.745 billion) all had trouble measuring up. And that might signal a broader economic slowdown that so many investors are worried about.
The only bright spot was the entertainment and devices division -- a surprise unto itself, because of ongoing Xbox 360 shortages during the quarter -- which blew past expectations which were only recently revised upward. The Street was originally projecting about $900 million. That projection swelled to $1.24 billion. Microsoft exceeded $1.57 billion for the unit, showing robust strength no one was really counting on, even in the face of a surging Nintendo Wii and stiff competition from Sony.
Guidance is also an issue. For the company's fourth fiscal quarter, the revenue line is better than expected at $15.5 billion to $15.8 billion, but the EPS midpoint is only slightly above consensus at 45 cents to 48 cents.