Microsoft CFO: Reorganization Puts Us On The Right Track


Declining PC sales and a $900 million charge on its Surface RT tablets caused Microsoft to miss Wall Street's estimates for its fiscal fourth quarter. But Microsoft expects its recently unveiled corporate reorganization to get it back on track.

Microsoft's revenue grew 10 percent during the quarter to $19.9 billion. Earnings came in at $4.97 billion, or 59 cents per share, compared with a $492 million loss in last year's quarter that came from Microsoft's $6.2 billion write-down of its AQuantive deal in 2007.

Without the Surface RT charge, Microsoft would have earned 66 cents per share, but that still would have fallen well short of Wall Street analysts' expectation of 75 cents per share on $20.7 billion in revenue.

[Related: Microsoft Takes $900M Charge On Surface RT 'Inventory Adjustments']

Windows division revenue declined 5 percent year over year due to weak PC sales, especially to consumers. Microsoft CFO Amy Hood said on the company's fourth-quarter earnings call Thursday that Microsoft is "working to transition this business into the modern era."

There was some good news for Redmond, Wash.-based Microsoft during the quarter, however.

Windows Phone revenue rose $222 million, which Microsoft chalked up to "patent licensing revenue and sales of Windows Phone licenses," although it didn't provide a breakdown of how much each contributed to the total.

While Microsoft overtook BlackBerry for third place in global smartphone shipments in the first quarter, Windows Phone still accounts for just 3.2 percent of the market, according to IDC figures released in May.

It's likely, then, that the bulk of that $222 million came from Microsoft's patent deals with Android device makers, which have chosen to pay licensing fees to Microsoft to avert potential Linux-related patent lawsuits.

Microsoft's Server and Tools unit saw revenue jump 9 percent during the quarter, with System Center revenue growing 14 percent and the premium version of Windows Server 2012 seeing "significant growth," according to Hood.

This is the last quarter Microsoft is reporting results from its five old business units: Windows, Server and Tools, the Microsoft Business Division, Entertainment and Devices, and Online Services.

Microsoft's reorganization news last week revealed that Microsoft is now organized around Operating Systems Engineering, Devices and Studios Engineering, Business Development and Evangelism, and Cloud and Enterprise Engineering.

As Microsoft reinvents itself around devices and services, the early returns on its Surface hardware aren't looking great, but the company isn't hiding from the truth.

"We know we have to do better," Hood said on the call, adding that the reorganization is key to these efforts. "A transition of this magnitude takes time, but we are confident we are moving in the right direction."

Microsoft shares dropped nearly 7 percent Thursday in after-hours trading to $33.09.

PUBLISHED JULY 19, 2013