Microsoft: Unimpressive Earnings Mean PC Storm Isn’t Over
Little has changed about Microsoft’s (NASDAQ:MSFT) business in the past three months, even though the company’s new CEO, Satya Nadella — who has been in charge for a little more than two months — has been praised for his open attitude and focus on new strategies. Difficulties still abound. “Nadella’s challenge will be to create new metaphors for Microsoft. Yet his first hurdle will be to play the hand he was dealt, namely the new corporate structure [former CEO Steve] Ballmer put into place weeks before his resignation in August,” wrote Fortune’s Adam Lashinsky ahead of the company’s earnings release. “Nadella also must contend with Ballmer’s subsequent agreement to buy Nokia, a deal that is pending. By all appearances, Nadella completely accepts this reality.”
Nadella is essential to any reversal of Microsoft’s fortunes, and for that reason, investors and Wall Street are more eager to hear the chief executive’s commentary on the results of the third quarter of the fiscal year than they are to hear the headline numbers. “This is actually a huge deal. Steve Ballmer was never on the call during his entire reign,” Morningstar senior equity analyst Norman Young told CNBC ahead of the Thursday earnings release. “It’s almost like he is stepping up the accountability. It’s an important tone to set for investors.”
Even though Microsoft has fallen behind its competitors, it is important to remember that the creator of the Windows operating system is still a very profitable company, and its results for the third quarter of fiscal 2014 proved that it is weathering the turmoil of the personal computer industry. Revenue matched forecasts, while profit beat Wall Street’s expectations; sales soared to $20.4 billion last quarter, roughly even with the $20.49 billion generated in year-ago results.
Operating income totaled $6.97 billion and net income came in $5.66 billion, pushing earnings to 68 cents per share. Comparatively, analysts had forecast Microsoft to generate earnings of 63 cents per share, a decline from the 72 cents per share earned in the year-ago quarter. As Microsoft Chief Financial Officer Amy Hood explained in the earnings report, the software maker was able to beat Wall Street’s bottom-line expectations by cutting costs on cloud-services operations and marketing. “It’s an ongoing effort,” she told Bloomberg. “We meet monthly to go through this data and we set bars and raise them.”