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

  • Google's YouTube losing major advertisers upset with videos

    Economic CTV News
    SAN FRANCISCO -- AT&T, Verizon and several other major advertisers are suspending their marketing campaigns on Google's YouTube site after discovering their brands have been appearing alongside videos promoting terrorism and other unsavoury subjects. The spreading boycott confronts Google with a challenge that threatens to cost it hundreds of millions of dollars. Source
  • Husky spill in southwest Alberta estimated at 25,000 litres; cleanup going well

    Economic CTV News
    CALGARY -- Husky Energy says about 25,000 litres of crude oil leaked from one of its pipelines in southwestern Alberta last week. Spokesman Mel Duvall said in an email to The Canadian Press that cleanup at the site at Cox Hill Creek west of Bragg Creek is progressing well. Source
  • Budget 2017: Hello Uber tax, goodbye Canada Savings Bonds

    Economic CBC News
    Consumer tax changes in Wednesday's federal budget will add to the cost of Uber rides while ending a public-transit credit. Those are just two of several Liberal government moves that will hit pocketbooks directly, though modestly. Source
  • Trump's SEC pick, a lawyer for Goldman, to face skepticism

    Economic CTV News
    WASHINGTON -- Goldman Sachs may be about to get another friend in Washington. Jay Clayton, a well-connected Wall Street lawyer who is President Donald Trump's pick to lead the Securities and Exchange Commission, is sure to face sharp questions from Democrats at his confirmation hearing Thursday over his years of work for Goldman and other financial giants. Source
  • Budget 2017: Liberals spend on training and innovation while holding line on most taxes

    Economic CBC News
    The Liberal government has delivered a budget designed to brace Canadians for a fast-changing global economy and empower women in the workforce, while taking a wait-and-see approach to sweeping changes south of the border. Budget 2017, titled Building a Strong Middle Class, offers targeted investments to tackle what it calls the "challenge of change. Source
  • Bell and Rogers to ask bars to pay more for sports packages

    Economic CBC News
    Bell and Rogers will soon ask sports bars to pay more for the right to broadcast big games, on top of what they pay for their existing television service. As first reported by Postmedia, the two media conglomerates are asking business subscribers across Canada to pay an additional levy of roughly $120 a month — depending on the size of the bar — on top of their existing cable bill for the rights to air sports channels that broadcast live sporting events such as the TSN, RDS and Sportsnet…
  • B.C. shellfish industry reels as norovirus sickens hundreds, forces closures

    Economic CTV News
    VICTORIA - The head of British Columbia's shellfish growers says the industry has been stunned by a mysterious norovirus that has forced the closure of seven coastal oyster farms and made hundreds of Canadians ill. Source
  • Starbucks Canada vows to hire at least 1,000 refugees

    Economic CBC News
    Starbucks Canada says it will hire at least 1,000 refugees over the next five years. The announcement Wednesday follows a statement in January by Starbucks CEO Howard Schultz that the company would hire 10,000 refugees around the world in the next half-decade. Source
  • Starbucks Canada sets goal to hire 1,000 refugees over five years

    Economic CTV News
    TORONTO -- Starbucks Canada has committed to hiring at least 1,000 refugees over the next five years, the coffee giant said Wednesday. The company said it will actively begin recruiting job candidates through the national organization, Hire Immigrants, which works with a network of municipal and provincial resettlement agencies. Source
  • Activists seek to intervene in Nebraska Keystone XL review

    Economic CTV News
    LINCOLN, Neb. -- Activists who want to derail the Keystone XL pipeline in Nebraska are again mobilizing to try to make their case to a small state commission that will decide the project's fate. Opponents on Wednesday will ask the Nebraska Public Service Commission to let them intervene in the case, allowing them to file legal briefs, cross-examine witnesses and present formal arguments alongside attorneys for pipeline developer TransCanada. Source