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Microsoft's Q4 Earnings Disappoint

Microsoft missed market expectations in its fourth-quarter 2013 earnings report, despite rising revenues.

Overall revenue was $19.90 billion for the quarter, which ended on June 30, representing a 10% increase compared year over year, but that figure was below the expected $20.72 billion expected by analysts. However, when non-GAAP (generally accepted accounting principles) analysis was included to account for the effects of Microsoft's Windows Upgrade Offer and Office Upgrade Offer deferrals, then there was just a 3% revenue increase for the quarter, according to Microsoft's Q4 earnings report.

Microsoft reported operating income of $6.07 billion, net income of $4.97 billion and earnings per share of $0.59. Analysts had expected $0.75 earnings per share, but when Microsoft's upgrade offers were included, earnings per share dropped to $0.52 (non-GAAP estimate).

Microsoft explained that it had taken a charge of $900 million in the quarter for "Surface RT inventory adjustments," which decreased its earnings per share figure by $0.07.

Revenue across the five divisions of the company were either up or flat year over year (see chart). However, Microsoft had operating income losses of $372 million in its Online Services Division and $110 million in its Entertainment and Devices Division during the quarter.

Microsoft Q4 2013 revenue earnings across divisions.

Non-GAAP estimates markedly changed this revenue picture, however. While the Windows Division had a revenue increase of $259 million (up 6%) under GAAP accounting, it was a revenue decrease of $281 million (6% decrease) under non-GAAP accounting for the quarter.

Server and Tools revenue brought in $452 million, up 9%, pushed by SQL Server. Online Services revenue was $69 million, up 9%.

The Microsoft Business Division revenue was $889 million, up 14%, but it was just an increase of 2% under non-GAAP accounting. Microsoft reported a 10% revenue growth from Office subscriptions and a 13% revenue growth from Dynamics. The company was hit by a 27% revenue decrease due to the Office Upgrade Offer, it reported.

The Entertainment and Devices Division revenue increased $134 million (8%), mostly due to Windows Phone. Microsoft indicated that Windows Phone revenue increased $222 million in the quarter, although it didn't provide the total figure. Xbox shipments decreased to 1.0 million units.

About the Author

Kurt Mackie is senior news producer for the 1105 Enterprise Computing Group.

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