Microsoft tops forecasts, but troubles persist
(MoneyWatch) After a relative disaster the previous quarter, Microsoft (MSFT) wowed investors by blowing past analyst expectations, pushing up its stock price more than 5 percent in after-hours trading. But the financial details show continued weakness in the company's core client computing business.
Microsoft's first-quarter revenue for its fiscal-year 20014 was $18.5 billion, up 16 percent from a year ago. Earnings per share jumped 17 percent to 62 cents.That easily beat estimates by Wall Street, which had forecast revenue of $17.8 billion and earnings per share of 54 cents.
The company's commercial division saw strong gains. Cloud computing sales, an important category for the software giant's future growth, more than doubled year over year, and important business software categories hit double-digit increases. On the consumer end, search ad revenue grew by 47 percent.
But not all of the results were good. Microsoft sold $400 million worth of its Surface tablets, but disclosed no information on the number of units. Given the price of the devices -- the Windows RT-based original starts at $349, while the Surface 2 starts at $449 and Surface 2 Pro, $899 -- unit sales would be a fraction of the almost 15 million iPads that Apple (AAPL) sold in the April-to-June quarter. Microsoft claimed that "sequential growth in revenue and units sold over the prior quarter," but didn't specify further. Meanwhile, Windows revenue from hardware partners dropped by 7 percent.
A linchpin of Microsoft's strategy -- control of the client operating system -- is effectively shattered. Last quarter the company badly missed analyst expectationsfor revenue and earnings. The big culprit was the lack of Surface sales. Microsoft even took at $900 million inventory write-down on Surface RT tablets. However, SEC filings suggest that the Surface did even worse than previously thought because consumer hardware sales had been down through the introduction of the device family.
The big miss helped spur a massive reorganization this summer at Microsoft, just before CEO Steve Ballmer announced that he would retire within 12 months. Hoping to energize its mobile business, the company also bought Nokia's device business. Such large strategic shifts shortly before a major leadership transition is unusual, with major changes typically left for the new chief executive to decide on.
But such strategies sound like what Microsoft had tried to do for decades, which is to control computing by enabling versions of Windows to run on all manner of devices.
Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.
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