Microsoft Profits Drop 22% Ahead of Windows 8 Launch

Microsoft announced that its net income declined 22 percent and earnings dipped 8 percent in its first fiscal 2013 quarter as the PC market slowed down in anticipation of Windows 8.

Microsoft reported a 22 percent decline in profit and a dip of 8 percent in revenues for its first fiscal quarter of 2013, as the company prepares for the launch of Windows 8 on Oct. 26.

The software giant said the decline came as customers put off purchases to wait for Windows 8, which is expected to deliver a boost to Microsoft, its partners and developers.

“The PC market was challenged this quarter,” said Peter Klein, Microsoft’s chief financial officer, during an Oct. 18 call with analysts and investors to discuss the earnings for the quarter that ended Sept. 30, 2012. “OEMs drew down their Windows 7 inventories,” he added.

"While enterprise revenue continued to grow and we managed our expenses, the slowdown in PC demand ahead of the Windows 8 launch resulted in a decline in operating income,” Klein said in a statement

Klein also noted that Microsoft has certified about 1,000 unique Windows 8 systems and there will be more to come. He also pointed out that over the last year Microsoft kicked off the largest technology refresh in the company’s history as it is delivering new versions of its core operating system, Office suite, server OS, Windows Phone software, Internet Explorer Web browser, and core development tools, among other things.

Microsoft announced quarterly revenue of $16.01 billion and net income of $4.47 billion. Those figures compare with the $17.37 billion in revenues and $5.74 billion in net income the company reported for the same period last year.

However, Microsoft said its financial results for the quarter reflect the deferral of $1.36 billion of revenue, due to “the Windows Upgrade Offer, presales of Windows 8 to OEMs prior to general availability, and the Office Offer,” according to press release on the earnings.

“The launch of Windows 8 is the beginning of a new era at Microsoft,” said Steve Ballmer, Microsoft CEO, in a statement. “Investments we’ve made over a number of years are now coming together to create a future of exceptional devices and services, with tremendous opportunity for our customers, developers and partners.”

Microsoft’s Server & Tools business reported $4.55 billion in first-quarter revenue, an 8 percent increase from the prior year period, driven by double-digit revenue growth in SQL Server and more than 20 percent growth in System Center revenue. In September, Microsoft continued to enrich its server offerings with the launch of Windows Server 2012.

Klein said Microsoft has done particularly well in the enterprise with its server and tools products. “Our products are scalable and flexible and provide the lowest cost of ownership,” he said.

The Microsoft Business Division posted $5.50 billion in first-quarter revenue, a 2 percent decrease from the prior year period. Microsoft’s productivity server offerings –including Lync, SharePoint, and Exchange – continued double-digit revenue growth, Klein said.

“Multi-year licensing revenue grew double-digits across Windows, Server & Tools, and Microsoft Business Division products as businesses commit to our technology roadmap,” Klein said.

Meanwhile, the Windows & Windows Live Division posted revenue of $3.24 billion, a 33 percent decrease from the prior year period.

“We’re incredibly excited to be approaching general availability of Windows 8 and Windows RT,” said Kevin Turner, Microsoft chief operating officer, in a statement. “We’ve already certified more than 1,000 systems for Windows 8 from our hardware partners, ranging from the smallest tablets and convertibles to touch-enabled ultrabooks and all-in-ones to the most powerful desktop computers.”

Microsoft’s Online Services Division reported revenue of $697 million, a 9 percent increase from the prior year period. Online advertising revenue grew 15 percent driven primarily by an increase in revenue per search.

And the company’s Entertainment and Devices Division posted revenue of $1.95 billion, a decrease of 1 percent from the prior year period. Xbox continues to be the top-selling console in the U.S., where it now has 49 percent market share. Windows Phone 8 will launch this fall with an expanded array of products, prices, carriers, and markets. Skype continued its rapid growth and now has over 280 million users.

There were 120 billion minutes of calls on Skype in the quarter, which was an increase of 58 percent, Klein said.