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Microsoft offers conservative revenue guidance, cuts spending forecasts

  • Microsoft (MSFT) guides on its FQ2 CC for its various reporting segments to collectively post FQ3 revenue of $20B-$20.5B. That compares with a $20.47B consensus. Given two straight quarters of solid revenue beats, investors might view the guidance as conservative.
  • The software giant is also lowering its FY14 (ends June '14) opex guidance range to $31.2B-$31.5B from a prior $31.3B-$31.9B, and cutting its FY14 capex budget by $500M to $6B. Microsoft's original capex budget wasn't well-received when first issued.
  • Microsoft isn't shy about highlighting its FQ2 enterprise numbers: The company states server product sales rose 12% Y/Y, and Office Commercial and Windows volume licensing sales 10% apiece. It also estimates Hyper-V gained 5 points of virtualization share; Hyper-V has been taking share from VMware's (VMW) market-leading vSphere platform for some time.
  • Office consumer sales fell 24% Y/Y,; Microsoft attributes 2/3 of the drop to a shift to Office 365 Home Premium, which now has over 3.5M subs (up from 2M in October).
  • Microsoft's unearned revenue balance (non-GAAP) rose 12% Y/Y to $19.5B, and its contracted not billed balance rose 12% to over $23B.
  • MSFT +3.6% AH. FQ2 results, details, earnings slides (.ppt), guidance slides (.ppt)

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Comments (21)
  • techy46
    , contributor
    Comments (7408) | Send Message
     
    Maybe somebody should give Steve Ballmer a little credit?
    23 Jan 2014, 06:44 PM Reply Like
  • Ruffdog
    , contributor
    Comments (1957) | Send Message
     
    a little credit, how about a lot of credit! What a show to go out on!
    23 Jan 2014, 07:19 PM Reply Like
  • movies555
    , contributor
    Comments (1085) | Send Message
     
    I think it's all due to the developers developers developers developers developers.....

     

    http://bit.ly/1dzDb9k

     

    (and no, in all seriousness, I'm not giving Ballmer any credit.)
    23 Jan 2014, 09:05 PM Reply Like
  • Matthew Davis
    , contributor
    Comments (4371) | Send Message
     
    Lol crickets.

     

    Apple heads don't have anything to say, smell the fear.
    23 Jan 2014, 07:02 PM Reply Like
  • Dennis Baker
    , contributor
    Comments (1383) | Send Message
     
    It's not 'fear' you are smelling, that's apathy. Few people invested in Apple care what happens with Microsoft at this point or even follow them.

     

    Microsoft isn't the 800 pound gorilla anymore, they are struggling to remain relevant in many markets they used to dominate (Consumer computing!!).
    23 Jan 2014, 10:55 PM Reply Like
  • Matthew Davis
    , contributor
    Comments (4371) | Send Message
     
    Dennis, what market are they irrelevant? What a joke.
    24 Jan 2014, 01:16 AM Reply Like
  • Dennis Baker
    , contributor
    Comments (1383) | Send Message
     
    I didn't say irrelevant.

     

    Spending billions and coming out with chump change for market share in major markets is struggling for relevance. Paying companies to put your product on their phones (Frank Shaw admitted they still do recently) is struggling for relevance.

     

    Spending billions on tablets which wind up sitting on shelves over a year later... that's struggling for relevance.

     

    I'd never suggest a company with Microsoft's marketing and money is irrelevant, but Microsoft has been bleeding money and market share in mobile computing for about 5 years now. Maybe you think the veritable flood of greenbacks marching their way out of Redmond's coffers to fund their mobile computing lines is a sign of a healthy business. No one else does.
    24 Jan 2014, 02:00 AM Reply Like
  • Dennis Baker
    , contributor
    Comments (1383) | Send Message
     
    This is the Microsoft that Apple is competing with primarily:
    ——————
    Devices and Consumer (D&C) Licensing revenue was down six percent year on year, and gross margin was down three percent, dropping to $5.4 and $5.0 billion respectively. Microsoft attributed this to the broader decline of the PC market. Although revenue of Windows Pro licenses sold to OEMs was up 12 percent, non-Pro revenue was down 20 percent, for an overall OEM revenue drop of three percent.
    —————— http://bit.ly/1isPz38

     

    and
    ——————
    Total Surface revenue was $0.89 billion, with both revenue and units sold doubling quarter-on-quarter. This came at some cost, however, with the cost of that revenue being $0.93 billion. This makes the Surface family a net loss-maker for the quarter.
    ——————

     

    Spending $930 million to sell $890 million worth of a consumer facing product during the Christmas quarter? Yeah, I'd say that's struggling for relevance.
    24 Jan 2014, 02:57 AM Reply Like
  • Island_Dweller
    , contributor
    Comments (495) | Send Message
     
    You're missing the broader picture here. MSFT is going headfirst into AAPL's territory, and while they may not win the battle, the war has yet to choose the winner (I'm looking at Android as the true threat).

     

    Is AAPL's going into MSFT's territory? Are they a major enterprise player? How about their O/S - is it bringing in stupid amounts of cash to throw at whatever they want? Are they in search, console gaming, or cloud?

     

    It's a big if, but if AAPL's cool factor, meaning the consumer experience in hardware should ever falter, what's plan B?

     

    I think AAPL has a firm enough grasp on hardware to remain in healthy margin territory based on the consumer experience and consumer perception of their products for the foreseeable future, but hardware is a tough racket to remain competitive indefinitely.
    24 Jan 2014, 08:58 AM Reply Like
  • racchole
    , contributor
    Comments (365) | Send Message
     
    Clarification: AAPL investors only care about what happens with Apple.

     

    Apple doesn't compete with Office and Windows volume licensing sales, nor does it have any type of virtualization software. I am sticking to MSFT and VMW/EMC.
    24 Jan 2014, 11:21 AM Reply Like
  • Matthew Davis
    , contributor
    Comments (4371) | Send Message
     
    They haven't been bleeding market share, they didn't have any mobile existence until recently, less than 5 years, so to say they are declining mobile is not true.

     

    In fact they have doubled their market share year over year, get the facts straight.
    24 Jan 2014, 03:31 PM Reply Like
  • Dennis Baker
    , contributor
    Comments (1383) | Send Message
     
    @island dweller

     

    Microsoft has been "going head first" into Apple's territory for 10 years. The iPod competed head to head with Microsoft's third party offerings, the zune came later straight at what was at the time Apple's big bread winner. iPhone went head to head against windows mobile, then windows phone 7 then windows phone 8. Remember, they had a funeral for the iPhone? The iPad went head to head against netbooks...

     

    Microsoft lost piles of money on every single one of those efforts and each time people said Apple needs to quake in its boots. Windows phone 8 and the Surface don't seem to be doing any better. Spending money chasing Apple and Google and failing pretty much defines Microsoft's consumer efforts since the turn of the century. That they are continuing down that path is unsurprising.

     

    Does Apple go head to head into Microsoft's territory? Sure, the MacBook Air is easily the most profitable laptop ever made. The new Mac Pro is likely the best selling workstation class computer on the market. The Mac mini is the most popular desktop computer on amazon.com. The Mac's market share is five times higher than it was 10 years ago and it's grown that share making a profit every single quarter. And quite frankly if you don't think the iPads growth has come at the expense of Windows PC sales, you've had your head in a hole for the past 4 years.

     

    But I've never suggested there was some big head on battle royal going on. Apple doesn't actively pursue the markets Microsoft excels in and likely never will. But Microsoft's efforts in mobile don't have anyone 'smelling like fear', not Google, not Apple, not Samsung, not even amazon. If you look at Microsoft's results, everywhere where they tried to push hard against Apple, they lost money in droves. Their enterprise efforts carried the day.
    24 Jan 2014, 04:37 PM Reply Like
  • Dennis Baker
    , contributor
    Comments (1383) | Send Message
     
    @Mathew

     

    First, please stop putting words in my mouth, that's the second time you've refuted a point I didn't make.

     

    I didn't say their share of the mobile market was 'declining', I said they spent billions and they have chump change for market share. I also said they spent more money than they've earned, both on Windows Phone and on the Surface. If you'd like to talk about those points feel free.

     

    Finally, since you mentioned facts, you should at least get them right. Microsoft has been selling smartphone operating systems for 15+ years. Windows tablets have been around for about as long. When the iPhone was released Windows Mobile had around 15-20% market share.
    24 Jan 2014, 04:54 PM Reply Like
  • Island_Dweller
    , contributor
    Comments (495) | Send Message
     
    I hate to bring up the dead horse, but the Apple you cited is no longer the Apple of today in terms of innovation. Conditions are much different while Cook plays catch up with bigger screens. The '00s Apple had no problem cannibalizing its on products because innovation was king. Telling consumers what they want trumped all else. Further the company ignored Wall Street, and the company would have never catered to the demands of China. The Apple of today is choosing to follow rather than lead into what's next. They no longer set the standard as they are entering a product cycle that's maturing rapidly. The market is being flooded with cheap tablets and high end challengers.

     

    My point is that Microsoft is going to keep on keeping on until something sticks, and something will stick eventually. The One Microsoft plan will continue with the new CEO, and all their devices are going to be tethered to each other crating a unified experience with any of their devices. It's pretty obvious to see what's happening as the vision comes to fruition. Not quickly by any means, but steadily.

     

    Now about declining PC sales, I think it's safe to say that it hasn't only been the iPad causing a decline in PCs, it's the tablet period. Thanks for your concern, but I do my best to keep my head above ground, much like my portfolio.
    25 Jan 2014, 06:19 AM Reply Like
  • Dennis Baker
    , contributor
    Comments (1383) | Send Message
     
    "Something will stick eventually"

     

    Microsoft has been at this game (mobile & consumer) for better than 15 years and have fallen down almost continually. I get that you believe they will succeed at mobile and consumer, but that belief is not very widespread after so many years of failure.
    25 Jan 2014, 07:11 AM Reply Like
  • A. ORDOOBADI
    , contributor
    Comments (19) | Send Message
     
    No comment, thanks.
    23 Jan 2014, 07:55 PM Reply Like
  • wil3714
    , contributor
    Comments (2058) | Send Message
     
    Impressive quarter, love CapEx cut and PC sales seem to subside

     

    Cloud, consumer, Windows and Office are improving
    23 Jan 2014, 08:25 PM Reply Like
  • omarbradley
    , contributor
    Comments (966) | Send Message
     
    and now they're in the handset business with their purchase of Nokia.

     

    time for Intel to start "lowballing guidance" as well?
    24 Jan 2014, 12:31 PM Reply Like
  • wil3714
    , contributor
    Comments (2058) | Send Message
     
    good and why not get into handsets, its the growing market
    25 Jan 2014, 09:12 AM Reply Like
  • Phil_GA
    , contributor
    Comments (46) | Send Message
     
    OK, so, if Office consumer sales fell by 24%, and two-thirds of this 24% went to Office 365, that leaves approximately 7.92% that went somewhere else.

     

    Did Microsoft address this rather large chunk of loss of sales during the call? Are they concerned that they only kept two-thirds of their previous-year's sales base?

     

    Where did 7.92% of their sales go?

     

    Long MSFT
    23 Jan 2014, 09:05 PM Reply Like
  • Transcripts&10-K's
    , contributor
    Comments (889) | Send Message
     
    "Where did 7.92% of their sales go?"

     

    The drop in consumer PC sales explains that remaining decline; it was lower than the drop in Consumer PC sales because attach rates increased in the Q.
    24 Jan 2014, 09:11 AM Reply Like
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