So far, this earnings season hasn’t been very kind to the tech sector. Several large companies have come out with disappointing reports, even though expectations weren’t strung particularly high. Microsoft Corporation (NASDAQ:MSFT), regarded as one of the more established names in the sector, reported numbers that missed analyst expectations quite substantially. As a result, the stock tanked in after-hours trading. Let’s take a closer look at what went wrong this quarter, as well as the competition’s results.
Earnings for the period came in at $0.59, well below the $0.75 consensus. However, this number was up from a loss in the same period a year ago. Revenue also missed expectations at $19.9 billion, versus a $20.72 billion consensus. These results include a fairly huge $900 million write-down for losses on the company’s Surface tablet. Excluding this, EPS would have been $0.66, still below estimates. According to management, the company is still suffering from a substantial decline in PC sales.
The Surface tablet represents the company’s first real foray into the mobile computing hardware business, and so far it hasn’t been very well received. The company recently slashed the price quite significantly in an attempt to increase sales, but the tablet still only managed to capture a very small market share. However, it isn’t only the tablet that weighed on the company’s results.
The Operating System segment, traditionally Microsoft Corporation (NASDAQ:MSFT)’s bread-and-butter industry, didn’t fare very well either, with a 6% decline in revenue. The new Windows 8 operating system has been so poorly received that it is believed to have contributed to the five consecutive quarters of slumping PC sales. Following this report, and the recently announced large-scale company reorganization, some commentators are questioning Microsoft Corporation (NASDAQ:MSFT)’s ability to sustain growth in an environment where its core business is in decline.
The report wasn’t all bad though. The Server and Tools Division posted a 9% increase in revenue for the quarter and the same figure for the full year. Online Services also did rather well with a 9% increase, as did Entertainment and Devices with 8%. The company commented on strength in the Cloud Computing space, as well as Enterprise products.
Somewhat surprisingly, Microsoft Corporation (NASDAQ:MSFT)’s rival Google Inc (NASDAQ:GOOG) also posted fairly disappointing numbers for its most recent report. Revenue, while up quite substantially from the same period a year ago, missed the consensus. Earnings were also poor, coming in at $9.56 per share versus analyst estimates of $10.80 for a fairly dramatic miss. Struggling to increase its mobile ad revenue in particular, the company also saw its operating margin decline 5% to 28%. The poor results from these two tech giants weighed on Nasdaq futures last Friday.