It was a rare miss from the behemoth, and a big one at that. Behind the shortfall was a $900 million charge for its Surface tablets, in addition to a previously deferred $782 million charge related to its Office software. Plus, the company continues to struggle in convincing consumers to update to its newly released Windows 8. Many aren’t enamored by the touch screen application and miss the familiar “Start” button featured on older versions.
In fact, lackluster Window 8 sales were blamed for the overall slump in the PC market since the operating system is closely tied to the PC market’s performance. Worldwide personal computer shipments slipped 11% to 6 million in the second quarter of 2013. That marked the fifth straight quarter of declines and longest PC slump on record.
PC Sales Struggling
The explosive growth of tablets and smartphones are indeed eating away at PC sales. That’s why Michael Dell is fervently vying to take his namesake company Dell Inc. (NASDAQ:DELL) private. Embroiled in a hostile battle with activist investor Carl Icahn, Mr. Dell says the only way to really save his company is away from prying eyes of critical shareholders and analysts.
Dell Inc. (NASDAQ:DELL)’s PC shipments fell 3.9% from the same quarter a year ago. It now stands in third place in the struggling PC market with just 11.8%. Lenovo, with 16.7%, elbowed past Hewlett-Packard Company (NYSE:HPQ) at 16.3%. Mr. Dell’s take-private plans include shifting Dell Inc. (NASDAQ:DELL)’s business away from PCs into mobile devices and business software. Shareholders will get their say when a vote is taken in late July.
Hewlett-Packard Company (NYSE:HPQ) didn’t take kindly to getting booted from the top spot. “We don’t like being No. 2 and we don’t plan to stay there,” a spokesperson told the Wall Street Journal. “We’re also focused on building a profitable business that’s smart about its future.”
Under CEO Meg Whitman’s short reign, Hewlett-Packard Company (NYSE:HPQ) has showed signs of improvement. On a mission to turn the company around, Whitman says her plans are on track despite a dip in second quarter earnings. The company earned $0.87 per share on revenue of $27.6 billion, compared to a profit of $0.98 per share on revenue of $30.7 billion. The numbers did however beat estimates of $0.81 EPS on revenue of $28.1 billion.
Moreover, the cloud hanging over the PC market may be lifting – at least slightly. Gartner analysts say thanks to more attractive and less expensive systems powered by new chips, “the steepest part of the decline is probably done.”
Microsoft’s Future
Microsoft Corporation (NASDAQ:MSFT) investors hope the 11.40% decline suffered after the uninspiring report is also done. But, shares probably face more downside. A lot is riding on the company’s recent reorganization plans which some analysts merely call window dressing.
To be sure, Microsoft Corporation (NASDAQ:MSFT) needs a genuine upgrade. Hopes are running high that by diversifying beyond product-based divisions, the company will be better able to address different needs within fast growing niche markets such as cloud computing and mobile.
“We are working hard to deliver compelling new devices and high value experiences from Microsoft Corporation (NASDAQ:MSFT) and our partners in the coming months, including new Windows 8.1 tablets and PCs,” CEO Steven Ballmer said in a statement. “Our new products and the strategic realignment we announced last week position us well for long-term success, as we focus our energy and resources on creating a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value the most.”
Analysts from Raymond James Financial and Cowen Group mostly disagree and cut shares to Perform from Outperform. Meanwhile, Goldman Sachs Group, Inc. (NYSE:GS) reiterated its Sell rating on shares and slashed the price target to $28 from $30. Goldman analysts caution shares could dip further.
Foolish final thoughts
Potential investors ought to remain patient. While the company stands to benefit from sales of its soon to be released and highly anticipated Xbox One, reduced prices of its Surface tablets, and a push to upgrade to Windows 8, may eventually help the business.
“While enterprise PC demand trends remain relatively stable in their view, Microsoft Corporation (NASDAQ:MSFT)’s take on the OEM market for September calls for another quarter of yoy declines similar to what was experienced in June . . .” Goldman wrote.
Mr. Softy’s shares are apt to stay soft for the foreseeable future.
Diane Alter has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft Corporation (NASDAQ:MSFT).
The article Microsoft Has Lost its MoJo originally appeared on Fool.com.
Diane is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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