Microsoft Announces First Ever Quarterly Loss

Microsoft posting a loss for the first time in its history was more dramatic than the stock reflected, being down about 1.4 percent on Friday. Microsoft burdened its online division with a $6.19 billion impairment charge for the loss in value of Aquantive. The result was a $492 million bottom line loss on record revenue of $18.06 billion. One year ago, Microsoft reported for the second calendar quarter (fourth fiscal quarter) revenue of $17.372 billion and a profit of $5.87 billion.

What is more notable than the "loss" is that most of Microsoft's business are healthy and are driving revenue and profitability increases. Sales of the Business unit (which includes Office), climbed from $5.87 billion in the second calendar quarter (CQ2) 2011 to $6.29 billion in CQ2 2012. Server division sales climbed from $4.52 billion to $5.09 billion and the entertainment unit jumped from $1.49 billion to $1.78 billion on record sales of 1.1 million Xbox consoles, 15 percent growth of Xbox Live subscribers and slowly improving Windows Phone sales.

The concerns are anchored in the Online division, which improved its loss by $266 million with an operating loss of $479 million (down from $745 million last year). Revenue was $0.74 billion, up from $0.68 billion in CQ 2011. It is clear that Microsoft is still struggling to make its Online business bring in a profit. The other interesting weakness is Microsoft's Windows division. Total revenue was $4.69 billion, but Microsoft is deferring Windows 8 upgrade revenue of $0.54 billion and about the same again for the current quarter. One year ago, Windows revenues were $4.74 billion and sales peaked in the third calendar quarter 2011 at $4.87 billion. The fact that Windows 8 is on the horizon surely impacts sales, but the persistent decline since CQ3 of 2011 to $4.74 billion in the fourth quarter and to $4.62 billion in the first quarter of 2012 is more pronounced than we would have expected.