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.


Latest Economic News

  • Feds defend Pacific NorthWest LNG decision as court challenges filed

    Economic CTV News
    Catherine McKenna, second left, Minister of Environment and Climate Change, speaks while flanked by Jim Carr, from left to right, Minister of Natural Resources, British Columbia Premier Christy Clark and Dominic LeBlanc, Minister of Fisheries, Oceans and the Canadian Coast Guard, after the federal government announced approval of the Pacific NorthWest LNG project, at the Sea Island Coast Guard Base, in Richmond, B.C. Source
  • United Way loses top ranking as America's largest charity

    Economic CTV News
    NEW YORK -- United Way, ranked as America's largest charity for all but one of the past 25 years, has been emphatically knocked from that spot by Fidelity Charitable, the leader of a rapidly growing philanthropic sector that is transforming the way many Americans give. Source
  • Meet George Jetson: Uber sees flying commuters in 10 years

    Economic CBC News
    Flying commuters like George Jetson could be whizzing to work through the sky less than 10 years from now, according to ride-services provider Uber, which believes the future of transportation is literally looking up. Uber Technologies Inc released a white paper on Thursday envisioning a future in which commuters hop onto a small aircraft, take off vertically and within minutes arrive at their destinations. Source
  • Husky Energy says response to Saskatchewan oil spill cost $90M

    Economic CTV News
    CALGARY -- Husky Energy says it has spent about $90 million responding to a pipeline spill in July that sent some 225,000 litres of heavy oil and diluent into the North Saskatchewan River. The Calgary-based company said Thursday that it believes the amount spent up to Sept. Source
  • Oilsands players hammer down costs, but is it enough?

    Economic CBC News
    The cost of producing a barrel of oilsands oil has come down substantially, but red ink continued to rule the day in the Alberta energy sector as third-quarter earnings rolled out this week. Suncor — one of three major oilsands producers that reported earnings in the past 24 hours — said that its operating costs decreased to $22.15 a barrel, an 18 per cent reduction over last year. Source
  • Police, soldiers move in to force Dakota Access protesters off private land

    Economic CBC News
    Armed law enforcement officers and soldiers, including some in riot gear, moved in on Thursday to remove Dakota Access pipeline protesters camped on private land in the path of the oil pipeline in North Dakota. Authorities with trucks, police cars, military Humvees and buses began the operation just before midday, with sirens blaring and officials telling protesters over a loudspeaker to move out. Source
  • National Bank cutting 600 jobs as part of digital shift

    Economic CBC News
    National Bank announced Thursday it will eliminate about 600 jobs as it aims to speed up its transition to the growing digital economy. At the same time, the Montreal-based bank said it will hire about 500 people, especially in sales and service and information technology functions. Source
  • Twitter shutting down Vine video service

    Economic CTV News
    Twitter is shutting down its Vine short-form video service amid other cost-cutting measures at the social media company which is bleeding money and struggling to find a buyer. Vine will be discontinuing its mobile app "in the coming months," with no specific date set at this point, according to a blog post on Medium, which is owned by Twitter co-founder Evan Williams. Source
  • About as many Canadians oppose recreational pot as support it, Deloitte survey finds

    Economic CBC News
    Forty per cent of Canadians in a recent survey said they support the notion of legalizing marijuana for recreational use, slightly more than those who said they oppose it. Deloitte surveyed 5,000 Canadians recently for their views on marijuana, and the results suggest a country that is very much divided on a topic that the federal government is currently trying to clarify the rules on. Source
  • How the trade agreement with the EU could benefit Canada

    Economic CTV News
    After seven years of negotiations, and a recent impasse between Belgium’s regional authorities, the free trade deal between the European Union and Canada could finally be signed over the next few days. Now that the holdout Belgian region of Wallonia is on board with the deal, the agreement now has to be formally approved by the parliaments of the 28 EU member nations. Source