The morning after Microsoft published its second quarter figures, its share price tumbled 10 per cent as markets opened in New York – wiping $30bn off its value.
Never mind the 3D goggles announced a few days before: a brace of Wall St analysts have cut their estimates and ratings for the software giant. The Street has talked much of Microsoft's need to adapt to changing realities, to protect income and generate new streams of revenue.
If you believe Microsoft’s spin on its second-quarter results, that’s what it’s doing – but there’s a down side: the core Windows and Office businesses are deflating.
Microsoft made much of growth in Office 365 subscriptions on Monday – they're up 30 per cent for non-enterprise.
Bunch of Wall St analysts cutting estimates and ratings on Microsoft this morning, including Nomura, Citi and JPMorgan.— Dina Bass (@dinabass) January 27, 2015
Cloud for the business – Office 365, Azure, Dynamics CRM online and others – made their sixth consecutive quarter of triple-digit revenue growth.
The once albatross-like Surface was up 23 per cent. Microsoft claimed Surface is now a $1.1bn business but carefully didn’t say how much it is still losing, if anything, on each and every Windows 8 tab that’s bought.
What Microsoft makes from cloud and Surface, however, is tiny compared to what the firms’ three main business engines make.
Microsoft’s three big generators are sales of Windows licences, Office and productivity, and server and tools products.
Commercial Windows licences fell two per cent and consumer Windows licences 13 per cent, but Office set took the prize for falling furthest – 25 per cent.
There are a number of culprits in the frame for Windows: the continued slump in PC sales is one. Another might be Microsoft’s decision to give away Windows for free for some PCs and tablets with a screen smaller than nine inches.
Microsoft’s CEO reckoned the drop was down to a claimed upswing in PC refreshes a year ago as people moved off Windows XP.
Microsoft blamed the Office slump on the transition to Office 365, and talked optimistically about a run rate of $5.5bn for its commercial cloud.
Run-rate is now used by tech-firm execs to explain small sales up front and how these will mean jam tomorrow, once people forget to cancel their subscriptions.
That, too, is an act of desperation – making shareholders hostages to the future based on the projections of the present.
Microsoft has always been a hostage to the success of the Windows and Office businesses and change was always going to be painful. After pushing Microsoft to change, now Wall St sees that and it doesn't like the view. ®