Microsoft’s Rising Earnings Still Don’t Attract Investors
Microsoft CEO Satya Nadella has been rowing the boat against the tide and getting the big fish in return. Microsoft’s quarterly revenues rose even above expectations last year, as sales boosted in every aspect – Surface tablets, Lumia smartphones, and cloud computing products. Microsoft finally got hold of the mobile gadget market when it acquired Nokia and shifted its conventional focus away from the plain, old PC.
- Cloud computing products: Revenues more than doubled. The division is now on track to bring in $5.5 billion in sales this year.
- Surface: Revenue jumped 24 percent to over $1 billion.
- Xbox: 6.6 million consoles were sold in the fourth quarter of 2014.
So you think that it must be raining gold coins all over Microsoft now. Well..nope. The stock is still down over 4 percent after-hours.
BGC Partners analyst, Colin Gillis, said investors are reacting to results in Microsoft’s “core” business of Windows software, which he called “not great.”
Even though Nadella is trying to steer Microsoft’s direction towards mobile, the company still relies largely on selling Windows for PCs. And while it enjoyed its glory in its times, the flagship business is now trying hard to keep up as sales of personal computers are going down for the last ten quarters in a row, according to research firm IDC.
“The PC isn’t dead, but people are much more mobile and they don’t spend all their time on their PC,” said Anthony Clendenen, a tech expert at En Pointe.
As a result of the decline in PC sales, particularly in China and Japan, Microsoft’s Windows licensing revenue dropped 13 percent during the period. Moreover, after the ending of XP’s support last year, Microsoft had enjoyed a great boost in sales of Windows as XP users were forced to shift to PCs installed with newer versions of Windows.
Gillis said “the cracks in the core business have people realizing, ‘Oh gee, there’s going to be a transition,’ ” that will take some time. Nadella’s strategy of building new business segments is sensible, “but those types of strategies don’t come without some bumps in the road,” he added.
Overall review of costs
Microsoft’s net income fell more than 10 percent to $5.86 billion for the fourth quarter of 2014 due to hefty costs.
However, revenue rose 8 percent year-over-year to $26.47 billion, with more than $2 billion the Nokia smartphone business.
Earnings per share of 71 cents matched expectations of analysts surveyed by FactSet. Revenue of $26.47 billion also edged past the $26.3 billion analysts expected.
A big ray of hope right now for Nadella is the launch for its flagship operating system, Windows 10, which is apparently going to be runnable on both PCs and mobile devices. Not only it is going to attract users, it is capturing the attention of developers as well for app development.
However, another chance for rising in revenues has been made by the genius tech of Microsoft – the HoloLens, computerized glasses built on Windows 10, which let wearers see and interact with three-dimensional holograms.