American company Microsoft has recently published a report on its activity during the fourth quarter (April-June 2012) and the financial year that finished in June 2012 in general. Sensational news has spread immediately: for the first time since entering the market in 1986 Bill Gates’s child Microsoft has finished a quarter with a loss. Some bloggers have started talks about “the beginning of the end of Microsoft”.
What is true and what is false about the “blue chip” of all trading grounds around the globe and the pride of American economy – Microsoft company?
What is loss of Microsoft connected with?
For the last three months of the previous financial year American software giant has shown 492 mln. dollar loss, as explained by the experts of in their interview to the “Market Leader”. At first sight, this seems to be a real failure if to compare with the result of the 4th quarter of 2011, when Microsoft earnings have amounted to 5.874 bln. dollars. This year operating income has amounted to only 192 mln. dollars – versus 6.171 bln. dollars last year. If during the period of April-June 2011 earnings per share used to be 0.69 dollars, then this year it has amounted to 0.06 dollar loss.
There is no wonder that journalists were doing their best to find the brightest title to describe the situation with Microsoft, up to “Microsoft is going down”.
However, paying enough attention to the news, one could not miss another information, which, to put it mildly, cast doubt on loud headings of foreign and Russian media. Thus, during the 4th quarter the company’s sales have risen by almost 700 mln. dollars in comparison to last year, having amounted to 18.06 bln. dollars. Annual sales volume has amounted to 73.723 bln. dollars, which is 5.4 percent more than year ago. Net profit during 2012 financial year has proved to be much smaller than last year (23.15 bln. dollars), but, nevertheless, it has reached the high sum of 16.978 bln. dollars. This can be compared to the state budget of a European country, not the largest though.
US software giant Microsoft Corp reported its firstloss since becoming a public company in 1986, the Financial Times writes:
- the company’s net loss has amounted to 492 mln. dollars, or 6 cents per share versus the profit of 5.87 bln. dollars, or 69 cents per share, during the equal period of 2011.
- sales have risen by 4% to 18 bln. dollars, despite smaller sales of personal computers, which make up a significant part of Microsoft flagman – operating system Windows. The profit was expected to rise to 18.1 bln. dollars.
- quarterly loss is expected in July when the company announces about its decision to accept 6.2 bln. dollar depreciation after unsuccessful purchase.
- income from Windows sales, the largest software company in the world, has dropped.
This piece of news has not influenced the general capitalization of the company, as explained by the Head of Portfolio Investment Department of Aleksei Afanasiev in his interview to the “Market Leader”, the price of the company’s shares have risen by 1.7% when US exchanges closed, the trading session finished at the level of 30.67 dollars per item:
Traders and investors (unlike millions of readers and viewers) have not considered such news sensational; Therefore, stock exchange has had no reaction to it: the case is that the fact of Microsoft quarterly loss had been known long before the official publication of the company’s report. American corporation had to put up with requirements of the US government to correct the profit at its free will due to unsuccessful investments in the past.
Microsoft has had the 6.2 bln. dollar loss during the 4th quarter not because of its major activity (software), but because of unsuccessful purchase of Internet advertising aQuantive back in 2007. At that time aQuantive seemed to be a profitable investment that would expand Microsoft presence in the global network and a competitive instrument to fight another American giant – Google. Unfortunately, the idea failed: instead of raising its competitiveness, Microsoft has received a “headache” and great loss.
It is worth mentioning that the purchase of aQuantive was then the largest transaction of Microsoft over its history, and only last year the purchase of Skype for 8.5 bln. dollars has broken the record.
That’s life. There is no business without certain loss, experts say. Strong companies overcome failures and get stronger because of them, whereas small ones disappear. Thus, for example, in May the largest by the volume of assets American bank JP Morgan reported 2 bln. dollar loss, which has been suffered this spring due to wrong predictions at the market of derivatives. The bank has not collapsed, though!
Without considering the written-off loss from aQuantive, Microsoft net profit during the 4th quarter has risen by 10 percent. Even taking into consideration the loss, Microsoft shareholders have gained profit by annual results – earnings per share have amounted to 2.02 dollars.
Perspective of Microsoft company
New financial year, which started on July 1st, will be successful for Microsoft, as stated by the head of Analytics Department of Roboforex (the company is included in rating of forex brokers ) Andrei Goilov. This is supposed to be favoured by the following:
1. Release of new operating system Windows 8 (it is officially scheduled for October 26, 2012), which is supposed to break the decline of Windows sales that has continued for seven quarters in a row (although the department that specializes in its release has managed to earn.15 bln. dollars during the previous year). New version of Office 2013 has already been introduced; Microsoft calls it a “superb product”. Other departments of American corporation are also improving – for example, the ones dealing with Office software package, the ones directed at Server and Tools, Entertainment and Devices, etc.
2. New sheets Surface will hit the market in September. Retail network of the corporation is rising: this financial year the number of company stores is going to be increased to 44. What is more, this concerns not only the USA, but also Canada and Puerto Rico. At present Microsoft it is cooperating with Finnish manufacturer Nokia in order to promote its smartphone software. It is currently providing the company’s innovation Lumia 900 with its Windows Phone software. Experts of the “Market Leader” do not exclude the fact that in the nearest future Microsoft will buy a share of Nokia or even engulf the Finnish manufacturer and will breath new life into it.
Thus, it is too early to bury Microsoft.
