Microsoft earnings show effects of aggressive turnaround strategy

SAN FRANCISCO -- Like a friendly but persistent sales rep, Microsoft has a message for anyone who owns a personal computer: If you haven't yet upgraded to Windows 10, the company highly recommends it.

See Full Article

So highly, in fact, that in coming weeks, PC owners who have set their machines to automatically install important updates -- like security fixes -- could find the new operating system already downloaded and ready for activation.

Microsoft's aggressive campaign to promote Windows 10 has led to its deployment on more than 200 million devices since its July release. It's part of a multi-pronged strategy, along with a push to expand in "cloud" computing, that analysts say is driving the early stages of a financial turnaround, as evidenced by Microsoft's latest earnings report on Thursday.

The Redmond, Washington-based tech company reported $5 billion in profit on nearly $24 billion in sales for the quarter ending Dec. 31. Revenue and profit were both down from a year ago, but after adjusting for deferred revenue and one-time costs, the numbers were better than Wall Street analysts expected.

Microsoft beat Wall Street's estimates for sales in key segments. Those include its cloud-computing segment, which lets commercial customers run their businesses on Microsoft's servers, and the division that sells PC software, Surface tablets and Xbox gaming consoles. Adjusted earnings amounted to 78 cents a share, while analysts polled by FactSet had expected adjusted earnings of 71 cents a share.

"All around, this looks like a quarter that (Microsoft CEO Satya) Nadella can frame and put in his office," FBR Capital Markets analyst Daniel Ives said. Microsoft's stock rose more than 3 per cent in extended trading after the results came out.

Long a dominant seller of PC-based software, Microsoft has seen its profit decline as consumers and businesses buy fewer PCs, cutting into licensing fees Microsoft gets from computer-makers. The last major upgrade of its operating system, known as Windows 8, was widely viewed as a flop, which hurt PC sales even more.

Nadella, who was named to the top job in 2014, has been pushing Microsoft to adapt to a world where people are increasingly using mobile gadgets, and where businesses are moving more of their operations to remote data centres, accessed via the Internet.

Microsoft broke with tradition last July by releasing Windows 10 as a free upgrade for older PCs, with no charge for future updates. It's also redesigned other popular products, such as the Office word-processing and spreadsheet programs, to work as mobile apps for devices running operating systems made by its rivals, Apple and Google.

The goal is to get people using Microsoft's latest products, no matter what kind of device they prefer, said Frank Gillett, a tech analyst with Forrester Research. He said that should give Microsoft more opportunities to make money by selling premium features or apps, such as online storage, Skype minutes or music and games.

The company is already seeing an increase in sales of apps and online advertising, tied to new features in Windows 10, Nadella told analysts Thursday.

But it's a gradual process, Gillett cautioned. Microsoft's personal-computing division reported $12.7 billion in sales for the December quarter, down 5 per cent from a year earlier. Within that division, Microsoft said revenue from licensing Windows to PC makers was also down 5 per cent, although the company noted that was better than the 8.3 per cent decline in overall PC sales that market researchers have estimated for the October-December quarter.

Meanwhile, analysts say Microsoft is also rapidly transforming its commercial-computing division by encouraging corporate customers to use its data centres. Microsoft's commercial "cloud computing" service is now the industry's second-largest, after Amazon's.

The potential for that business "is massive -- larger than any market we have ever participated in," Nadella said Thursday.

Revenue for Microsoft's cloud division rose 5 per cent, to $6.3 billion, for the December quarter. The company has had more success in that business than other established commercial tech giants like Hewlett-Packard and Oracle, according to Ives, who called cloud computing a "bedrock" element of Nadella's strategy.

As for the company's aggressive promotion of Windows 10, those promotional nudges have drawn a few complaints from PC owners who don't necessarily want to upgrade their software. But in coming months, Microsoft says the Windows 10 upgrade will be re-categorized from "optional" to "recommended," which means people who use the automatic update feature on older Windows PCs could find the new software has downloaded automatically.

Microsoft says users will still get a prompt asking if they want to accept or decline the upgrade. They can also revert back to their old software if they change their mind within 31 days.



Advertisements

Latest Economic News

  • Canam stock nearly doubles on going-private offer for Quebec-based company

    Economic CTV News
    MONTREAL -- Canam Group is preparing to end its 33-year run as a public company after partnering with a U.S. company and Quebec investors to take the structural steel specialist private. After a few years of reflection, the leadership of the company founded in 1960 concluded that the constraints of being public not longer fit with its vision. Source
  • United Airlines reaches undisclosed settlement with passenger dragged from plane

    Economic CBC News
    A Kentucky doctor who was dragged off a United Airlines flight after he refused to give up his seat to crew members has reached a settlement with the airline for an undisclosed amount. David Dao's legal team announced the settlement Thursday in a brief statement. Source
  • Employers can pay women less based on past salaries, U.S. court rules

    Economic CTV News
    SAN FRANCISCO -- A federal appeals court says employers can legally pay women less than men for the same work based on differences in the employees' previous salaries. The decision by the 9th U.S. Source
  • BlackBerry smartphone with physical keyboard will be sold in Canada next month

    Economic CTV News
    TORONTO - Canadians will be able to buy a new BlackBerry-branded smartphone with a physical keyboard starting next month. The KEYone, a phone made in partnership between TCL Communication Technology Holdings Ltd. (TCT) and BlackBerry (TSX:BB), will be available for pre-order at some partners as of May 18. Source
  • Southwest Airlines to end practice of overbooking flights

    Economic CBC News
    Southwest Airlines says it plans to stop overbooking flights — an industry practice implicated in an ugly incident on a United Airlines flight that has damaged United's reputation with the flying public. Last year Southwest bumped 15,000 passengers off flights, more than any other U.S. Source
  • Toyota recalls 250K Tacoma pickups in North America

    Economic CTV News
    DETROIT -- Toyota is recalling about 250,000 small pickup trucks mainly in North America because the rear wheels have the potential to lock up, causing drivers to lose control. The recall covers certain Tacoma trucks from the 2016 and 2017 model years. Source
  • Judge orders Volkswagen to pay $2.1B in class-action suit over emissions scandal

    Economic CTV News
    TORONTO -- Members of a Canadian class-action lawsuit against Volkswagen can submit claims for reimbursement starting on Friday after an Ontario court approved a $2.1-billion settlement plan. The 105,000 people who purchased or leased certain Volkswagen or Audi vehicles with two-litre diesel engines that were caught up in an emissions cheating scandal will each receive a payment between $5,100 and $8,000, wrote Superior Court Justice Edward Belobaba in his judgment Wednesday. Source
  • Suncor CEO says more oilsands deals may appear in 'exodus' of foreign firms

    Economic CTV News
    CALGARY -- Suncor Energy (TSX:SU) has a potential opportunity to make further purchases in Alberta's oilsands if foreign multinationals continue to exit the sector, the oil and gas company's chief executive said Thursday. Suncor feels no pressure to buy but is watching closely for opportunities and has the financial strength to act, Suncor CEO Steve Williams said Thursday on a quarterly conference call with analysts. Source
  • Man removed from flight for using bathroom before takeoff

    Economic CTV News
    MILWAUKEE -- A Wisconsin man was removed from a Delta Air Lines flight after using the bathroom against crew instructions shortly before takeoff. Kima Hamilton says he urgently needed to use the bathroom April 18 while on a Milwaukee-bound plane in Atlanta. Source
  • European Central Bank says economy is 'increasingly solid'

    Economic CTV News
    FRANKFURT -- The European Central Bank kept its stimulus program and interest rates unchanged Thursday even though it conceded that the economy of the 19-country eurozone is becoming stronger. While indicators in recent weeks have pointed to much faster growth, there was little expectation the central bank would ease off its stimulus programs in the run-up to the second round of France's presidential election, in which anti-euro candidate Marine Le Pen is battling pro-EU front-runner Emmanuel…