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Surface RT tanks Microsoft's earnings

Mark Hachman | July 19, 2013
Microsoft reported its earnings for the June quarter on Thursday, and they were downright awful by Wall St. standards. The blame falls on Windows RT.

Microsoft's Windows Division revenue grew 6 percent for the fourth quarter and 5 percent for the full year. Excluding the $540 million impact of its Windows Upgrade Offer revenue deferral, however, the Windows Division revenue would have decreased 6 percent for the fourth quarter and 1 percent for the full year.

Cloud services
Microsoft was also affected by the continued slide in the PC market, which has seen consumer buy tablets and phones rather than PCs. Amy Hood, Microsoft's chief financial officer, said that Microsoft is instead investing in cloud services.

"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. We also saw increasing consumer demand for services like Office 365,, Skype, and Xbox LIVE," Hood said. "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's traditional pillars of strength continued to buoy the company.

  • Microsoft's Business Division reported the highest profits and revenue, at $4.87 billion ($4.1 billion a year ago) and $7.2 billion respectively ($6.3 billion a year ago).
  • Server and Tools reported $2.3 billion in profits (versus $2.04 billion a year ago) on $5.5 billion in revenue ($5.1 billion a year ago).
  • Microsoft's Entertainment and Devices Division also saw its losses shrink from $252 million to $110 million, as revenues grew from $1.78 billion to $1.92 billion.
  • Microsoft's online business continued its money-losing ways, with a loss of $372 million on increased revenue of $804 million.
  • Bing organic U.S. search market share was 17.9 percent for the month of June 2013, up 230 basis points from the prior year period, Microsoft said.

"We continue to see strong demand for our enterprise products and services, with more and more customers making long-term commitments to the Microsoft platform," said Kevin Turner, chief operating officer at Microsoft, in a statement. "The growing adoption of our cloud services, including Office 365, Windows Azure and Dynamics CRM, continues to demonstrate our leadership position in the cloud."

Microsoft did not release a revenue outlook.


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