Software giant: Microsoft share price plunges

January 28, 2015 7:38 pm

Microsoft shares plunged more than 9 per cent yesterday after the
software giant reported quarterly revenue that beat expectations but
warned that a weak PC market and a strong dollar will curb growth this
year.

 Microsoft’s share-price fall shows investors’ honeymoon with chief executive Satya Nadellamay be over. Photo/ AP

Profit excluding certain costs in the second quarter was US77c a share.
Revenue
rose 8 per cent to US$26.5 billion ($35.6 billion), Microsoft said.
Analysts on average projected profit of US75c on sales of US$26.3
billion, showed Bloomberg-compiled data.
Including charges linked
to the giant’s biggest-ever round of job cuts, which began in July, and
US4c a share of income-tax expense, Microsoft reported second-quarter
net income of US$5.86 billion, or US71c a share.
Many analysts slashed price targets on the stock and some cut their buy ratings to hold.
What are Wall St’s main concerns?

What’s ahead
Microsoft showed
promising signs of growth in new businesses, such as cloud computing,
but chief financial officer Amy Hood forecast revenue for the current
period that missed analysts’ expectations. Revenue for the quarter to
March will be US$21 billion if Microsoft hits the midpoint of its own
forecast. Analysts had forecast US$23.8 billion, on average.
“The
cloud transition remains on track, but lower numbers means a lower
price target,” said analyst Ross MacMillan of RBC Capital Markets.
XP upgrades are over
Last
year Microsoft stopped supporting its Windows XP software. That drove
many consumers and businesses to upgrade their computers, giving a big
boost to sales of newer Windows software. It seems that “end-of-XP” jolt
is over. Microsoft said Windows licensing revenue fell 13 per cent in
the December quarter, now that most businesses have finished replacing
their old XP computers.
China and Japan markets are weak
PC
sales have been slumping worldwide, but Microsoft said Windows and
Office revenue in China and Japan markets was particularly weak due to
broader economic issues in those countries. Chief executive Satya
Nadella wasn’t specific on what was ailing Chinese demand, citing
“geopolitical issues”. To analysts, that’s code for the Chinese
antitrust investigation of Microsoft and the country’s government
avoiding Microsoft software buys. China aims to purge most foreign
technology from banks, the military, state-owned enterprises and key
government agencies by 2020, sources said last month. In July, Chinese
regulators raided Microsoft offices there.
Strong dollar
Microsoft said the strong dollar will trim revenue by 4 per cent in the current quarter.
Transition far from over
In
less than a year, Nadella has made strides in expanding Microsoft’s
focus from PCs to the growing variety of gadgets people use to go
online. The quarter showed major gains in sales of cloud-computing
software, Surface tablets and Lumia smartphones. But yesterday’s stock
slump shows investors’ honeymoon with Nadella may be over.
“He is
a very skilled executive,” Cowen analyst Gregg Moskowitz said, but
questioned if Nadella could effect enough positive change over time.
Microsoft
shares closed down 9.2 per cent at US$42.66 yesterday. The stock rose
for much of 2014, peaking at US$50.05, but has slipped since the start
of the year.

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