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Microsoft earnings: no escaping global recession

Warren Wilson | July 28, 2009
Dismal results, but they could have been worse

The results Microsoft posted yesterday for its fiscal 2009 fourth quarter and full year were dismal. Gross revenues were US$13.10 billion for the quarter, down 17 per cent from the year before, and $58.44 billion for the full year, down 3 per cent from the prior year. Net income was worse: $3.0 billion for the quarter, down 29 per cent; and $14.6 billion for the full year, down 18 per cent.

Every segment suffered. The Windows client division was off 29 per cent for the quarter, 13 per cent for the year. The Business division (which includes the Office cash cow and the Dynamics family of ERP and CRM applications, and is the companys largest segment) was down 13 per cent for the quarter, but flat for the full year. The Entertainment and Devices division was down 25 per cent for the quarter and 6 per cent for the year.

Only the Server and Tools segment, the second-largest after the Business division, was relatively unscathed down 6 per cent for the quarter but up 8 per cent for the year. Those results look even stronger in the context of a server hardware market that is down more than 20 per cent.

In fact, as bad as the numbers looked, they could have been worse and would have been if Microsoft hadnt instituted stringent cost-control measures, including the first layoffs in its history.

With the global economy no longer in free-fall, the worst seems to be over. The economys recovery promises to be long and slow, so Microsoft faces several months of bumping along the bottom along with everyone else. But after that, the picture begins to brighten.

A wave of new products and some lingering issues

The three biggest reasons for optimism are the impending releases, starting in October, of Windows 7, Windows Server 2008 R2 and Office 2010. Windows 7 has been getting rave reviews and should finally allow Microsoft to close the door on the nightmare known as Vista. In fact, some of the weakness in the most recent results probably reflects customers holding off on Vista purchases in anticipation of Windows 7 becoming available soon.

The recent results also reflect a decision by many organizations to stretch out their desktop and laptop refresh cycles. At some point they have to buy new equipment a decision that becomes easier as the economy begins to improve and Windows 7 provides an attractive option.

The next version of Microsofts flagship server product, Windows Server 2008 R2, will also be available in October, bringing new virtualization capabilities, new management tools and a new version of Internet Information Services.

 

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