Microsoft Misses Q4 Estimates, Takes $900M Charge on Surface RTs

Microsoft missed analyst estimates of its Q4 2013 earnings and took a $900 million charge on Surface RT tablet inventory.

Citing a decline in the PC market, Microsoft missed analyst estimates of its fiscal fourth-quarter 2013 earnings, announced July 18.

Microsoft announced quarterly revenue of $19.90 billion for the quarter ended June 30, 2013. Operating income, net income and diluted earnings per share for the quarter were $6.07 billion, $4.97 billion and $0.59 per share, respectively. These financial results include a $900 million charge, or a $0.07 per share impact, related to Surface RT tablet inventory adjustments. Microsoft recently reduced the price of Surface RTs by $150—from $499 down to $349.

However, excluding the Surface charge, Microsoft's earnings were 66 cents per share, short of the 75 cents per share expected by analysts. The quarterly revenue of $19.9 billion also was short of analyst estimates of $20.72 billion the company was expected to earn for the quarter.

"While our fourth quarter results were impacted by the decline in the PC market, we continue to see strong demand for our enterprise and cloud offerings, resulting in a record unearned revenue balance this quarter," said Amy Hood, chief financial officer at Microsoft, in a statement. "We also saw increasing consumer demand for services like Office 365, Outlook.com, Skype, and Xbox LIVE. While we have work ahead of us, we are making the focused investments needed to deliver on long-term growth opportunities like cloud services."

Microsoft said its fourth-quarter results also reflect the recognition of $782 million of previously deferred revenue related to the Office Upgrade Offer.

For Microsoft's fiscal year 2013, the company's revenue, operating income and diluted earnings per share were $77.85 billion, $26.76 billion, and $2.58 per share, respectively. These financial results reflect the recognition of $540 million of previously deferred revenue related to the Windows Upgrade Offer and a $733 million expense related to the European Commission fine.

"We are working hard to deliver compelling new devices and high value experiences from Microsoft and our partners in the coming months, including new Windows 8.1 tablets and PCs," said Microsoft CEO Steve Ballmer in a statement. "Our new products and the strategic realignment we announced last week position us well for long-term success, as we focus our energy and resources on creating a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go for the activities they value the most."

Microsoft Business Division revenue grew 14 percent for the fourth quarter and 3 percent for the full year. Adjusting for the recognition of previously deferred revenue related to the Office Upgrade Offer, Microsoft Business Division non-GAAP (Generally Accepted Accounting Principles) revenue increased 2 percent for the fourth quarter. Office 365 is now on a $1.5 billion annual revenue run rate.