Microsoft Jumps Shark, Posts Earnings Early On Website: Another Glitch?

Tyler Durden's picture

From Microsoft (h/t Lizzie)

Redmond, Wash. – Jan. 27, 2011 – Microsoft
Corp. today announced record second-quarter revenue of $19.95 billion for the quarter
ended Dec. 31, 2010. Operating income, net income and diluted earnings per share
for the quarter were $8.17 billion, $6.63 billion and $0.77 per share, respectively.


Prior year results reflect the recognition of $1.71 billion of deferred revenue
relating to the Windows 7 Upgrade Option program and sales of Windows 7 before general
availability in October 2009. Second-quarter growth rates for revenue and earnings
per share were 5% and 4% respectively. Without the deferred recognition in the prior
year, second-quarter growth rates for revenue and earnings per share were 15% and
28%, respectively.


(In millions, except per share amounts) Three months ended December 31,  
2010 As Reported (GAAP) 2009 As Reported (GAAP) Deferred Revenue Recognition 2009 As Adjusted
Change (GAAP)
Change (Non-GAAP)
Revenue $19,953 $19,022 $1,711 $17,311 5% 15%
Operating income $8,165 $8,513 $1,711 $6,802 -4% 20%
Diluted Earnings Per Share $ 0.77 $ 0.74 $0.14 $ 0.60 4% 28%

“We are enthusiastic about the
consumer response to our holiday lineup of products, including the
launch of Kinect. The 8 million units of Kinect sensors sold in just 60
days far exceeded our expectations,” said Peter Klein, chief financial
officer at Microsoft. “The pace of business spending, combined with
strong consumer demand, led to another quarter of
operating margin expansion and solid earnings per share
Among the factors driving Microsoft’s record
revenues and earnings per share was the 55% growth in revenue for the
Entertainment & Devices Division, as the success of the Kinect
sensor boosted sales of Xbox 360 consoles, Xbox Live subscriptions and
Xbox games.
Microsoft Business Division revenue grew 24%
year-over-year. Office 2010 is the fastest-selling consumer version of
Office in history, with license sales over 50% ahead of Office 2007 over
an equivalent period following launch.

“Business demand for our productivity and infrastructure
products and cloud solutions is strong. Office had a huge quarter,
exceeding everyone’s expectations, and our roadmap for cloud
productivity with Office 365 makes products like SharePoint, Exchange,
Lync and Dynamics CRM even more attractive to our customers,” said Kevin
Turner, chief operating officer at Microsoft. “Windows 7 continues to
be the fastest-growing operating system in history, and our recent
System on a Chip announcement demonstrates our
commitment that Windows will have the power and flexibility to run
everywhere and on every device.”
   Among the other product and business highlights Microsoft reported in the quarter:

  • Microsoft announced it has now sold over 300 million Windows 7
    licenses, and Windows 7 is now running on over 20% of Internet-connected

  • Windows Phone 7 launched during the quarter in 30 countries and
    on 60
    operators and nine different devices. Microsoft announced
    developers are adding Windows Phone 7 applications to the marketplace at
    a rate
    of over 100 per day.

  • Bing completed the integration of Yahoo! search in the U.S. and Canada and continues to gain share.

  • Windows Azure developer momentum continued this quarter, with
    Pixar Animation Studios, ADP with NVoicePay and others demonstrating
    compelling uses of the platform.

  • Internet Explorer 9 is Microsoft’s fastest downloaded beta browser of all time with over 20 million downloads to date.

  • At International CES 2011 in early January, Microsoft announced that the next version of Windows will support
    System on a Chip architectures.

  • The company announced that during the quarter, it bought back $5 billion in stock and declared $1.3 billion in dividends.

Business Outlook


Microsoft reaffirms operating expense guidance of $26.9 billion to $27.3 billion for the full year ending June 30, 2011.


Webcast Details


Peter Klein, chief
financial officer, Frank Brod, chief accounting officer, and Bill
Koefoed, general manager of Investor Relations, will host a conference
call and webcast at 2:30 p.m. PST (5:30 p.m. EST) today to discuss
details of the company’s performance for the quarter and certain
information. The session may be accessed at
. The webcast will be available for replay through the close of business on Jan. 27, 2012.


Adjusted Financial Results and Non-GAAP Measures


In addition to financial
results reported in accordance with generally accepted accounting
principles (GAAP), we have provided certain non-GAAP financial
information to aid investors in better understanding the company’s
performance. For revenue, operating income and earnings per share growth
we excluded the impact of deferred revenue recognized in the prior year
fiscal quarter relating to the Windows 7 Upgrade Option program and
sales of Windows 7 before general availability in October 2009.
Presenting these measures without the impact of this item gives
additional insight into operational performance and helps clarify trends
affecting the company’s business. For comparability of reporting,
management considers this information in conjunction with GAAP amounts
in evaluating business performance. These non-GAAP financial measures
provided should not be considered as a substitute for, or superior to,
the measures of financial performance prepared in accordance with GAAP.


To aid comparability of prior
results, we have also recast certain prior period amounts within our
Form 10-Q that conforms to the way we internally managed and monitored
segment performance during the current fiscal year. In addition to the
reconciliation in this release, our supplementary earnings slide deck at
contains a reconciliation of adjusted financial results and a reconciliation between reported and recast segment results.


About Microsoft


Founded in 1975, Microsoft (Nasdaq “MSFT”)
is the worldwide leader in software, services and solutions that help people and
businesses realize their full potential.




Forward-Looking Statements


Statements in this release that are “forward-looking
statements” are based on current expectations and assumptions that are subject
to risks and uncertainties. Actual results could differ materially because of factors
such as:


  • execution and competitive risks in transitioning to cloud-based computing;

  • challenges to Microsoft’s business model;

  • intense competition in all of Microsoft’s markets;

  • Microsoft’s continued ability to protect its intellectual property rights;

  • claims that Microsoft has infringed the intellectual property rights of others;

  • the possibility of unauthorized disclosure of significant portions of Microsoft’s
    source code;

  • actual or perceived security vulnerabilities in Microsoft products that could reduce
    revenue or lead to liability;

  • improper disclosure of personal data could result in liability and harm to Microsoft’s

  • outages and disruptions of services provided to customers directly or through third
    parties if Microsoft fails to maintain an adequate operations infrastructure;

  • government litigation and regulation affecting how Microsoft designs and markets
    its products;

  • Microsoft’s ability to attract and retain talented employees;

  • delays in product development and related product release schedules;

  • significant business investments that may not gain customer acceptance and produce
    offsetting increases in revenue;

  • unfavorable changes in general economic conditions, disruption of our partner networks
    or sales channels, or the availability of credit that affect demand for Microsoft’s
    products and services or the value of our investment portfolio;

  • adverse results in legal disputes;

  • unanticipated tax liabilities;

  • quality or supply problems in Microsoft’s consumer hardware or other vertically
    integrated hardware and software products;

  • impairment of goodwill or amortizable intangible assets causing a charge to earnings;

  • exposure to increased economic and regulatory uncertainties from operating a global

  • geopolitical conditions, natural disaster, cyberattack or other catastrophic events
    disrupting Microsoft’s business; and

  • acquisitions and joint ventures that adversely affect the business.


    For further information regarding risks and uncertainties
    associated with Microsoft’s business, please refer to the “Management’s
    Discussion and Analysis of Financial Condition and Results of Operations”
    and “Risk Factors” sections of Microsoft’s SEC filings, including,
    but not limited to, its annual report on Form 10-K and quarterly reports on Form
    10-Q, copies of which may be obtained by contacting Microsoft’s Investor Relations
    department at (800) 285-7772 or at Microsoft’s Investor Relations website


    All information in this release is as of Jan 27, 2011.
    The company undertakes no duty to update any forward-looking statement to conform
    the statement to actual results or changes in the company’s expectations.


    For more information, press only:
    Rapid Response Team, Waggener Edstrom Worldwide, (503) 443-7070,


    For more information, financial analysts and investors

    Bill Koefoed, general manager, Investor Relations, (425) 706-3703


    Note to editors: For more information, news and
    perspectives from Microsoft, please visit the Microsoft News Center at Web
    links, telephone numbers and titles were correct at time of publication, but may
    since have changed. Shareholder and financial information, as well as today’s
    2:30 p.m. PST conference call with investors and analysts, is available at





    (In millions, except per share amounts) (Unaudited)


    Three Months Ended
    December 31,
    Six Months Ended
    December 31,
    2010 2009 2010 2009
    Revenue $19,953 $19,022 $36,148 $31,942
    Operating expenses:
    Cost of revenue

    4,833 3,628 7,972 6,470
    Research and development

    2,185 2,079 4,381 4,144
    Sales and marketing

    3,825 3,619 6,631 6,409
    General and administrative

    945 1,183 1,883 1,924

    Total operating expenses

    11,788 10,509 20,867 18,947

    Operating income 8,165 8,513 15,281 12,995
    Other income 332 370 446 653

    Income before income taxes 8,497 8,883 15,727 13,648
    Provision for income taxes 1,863 2,221 3,683 3,412

    Net income $6,634 $6,662 $12,044 $10,236

    Earnings per share:

    $0.78 $0.75 $1.41 $1.15

    $0.77 $0.74 $1.39 $1.14

    Weighted average shares outstanding:

    8,497 8,856 8,555 8,885

    8,570 8,951 8,646 8,975

    Cash dividends declared per common share $0.16 $0.13 $0.32 $0.26







    (In millions)


    December 31, June 30,
    Current assets:
    Cash and cash equivalents

    $4,023 $5,505
    Short-term investments (including securities loaned of $982 and $62)

    37,229 31,283

    Total cash, cash equivalents, and short-term investments

    41,252 36,788
    Accounts receivable, net of allowance for doubtful accounts
    of $317 and $375
    12,874 13,014
    Inventories 861 740
    Deferred income taxes 2,548 2,184
    Other  2,149 2,950

    Total current assets

    59,684 55,676
    Property and equipment, net of accumulated depreciation
    of $9,279 and $8,629
    7,799 7,630
    Equity and other investments 10,022 7,754
    Goodwill 12,502 12,394
    Intangible assets, net 992 1,158
    Other long-term assets 1,307 1,501

    Total assets

    $92,306 $86,113

    Liabilities and stockholders' equity
    Current liabilities:
    Accounts payable

    $3,863 $4,025
    Short-term debt

    0 1,000
    Accrued compensation

    2,402 3,283
    Income taxes

    1,439 1,074
    Short-term unearned revenue

    12,063 13,652
    Securities lending payable

    1,355 182

    3,190 2,931

    Total current liabilities

    24,312 26,147
    Long-term debt 9,671 4,939
    Long-term unearned revenue 1,354 1,178
    Deferred income taxes 826 229
    Other long-term liabilities 7,662 7,445

    Total liabilities

    43,825 39,938
    Commitments and contingencies
    Stockholders' equity:
    Common stock and paid-in capital - shares authorized 24,000;   outstanding 8,403 and 8,668
    61,646 62,856
    Retained deficit, including accumulated other comprehensive   income of $1,697 and $1,055
    (13,165) (16,681)

    Total stockholders' equity

    48,481 46,175

    Total liabilities and stockholders' equity

    $92,306 $86,113

    (1) Derived from audited financial statements







    (In millions)  (Unaudited)


      Three Months Ended
    December 31,
    Six Months Ended
    December 31,
    2010 2009 2010 2009

    Net income
    $6,634 $6,662 $12,044 $10,236

    Adjustments to reconcile net income to net   cash from operations:
    Depreciation, amortization, and other

    663 615 1,357 1,261
    Stock-based compensation expense

    553 485 1,081 928
    Net recognized gains on investments   and derivatives

    (226) (188) (255) (254)
    Excess tax benefits from stock-based   compensation

    (4) (15) (9) (24)
    Deferred income taxes

    (117) 550 (265) 504
    Deferral of unearned revenue

    6,834 6,926 12,715 13,605
    Recognition of unearned revenue

    (7,301) (9,126) (14,163) (15,363)
    Changes in operating assets and   liabilities:

    Accounts receivable

    (3,270) (2,789) 404 (41)

    380 558 (88) 139

    Other current assets

    (77) 686 131 451

    Other long-term assets

    118 16 180 (62)

    Accounts payable

    216 3 (184) (33)
    Other current liabilities

    (500) 282 (1,411) (921)

    Other long-term liabilities

    283 304 843 650

    Net cash from operations

    4,186 4,969 12,380 11,076


    Short-term debt repayments, maturities of   90 days or less, net
    (1,000) (475) (186) (97)

    Proceeds from issuance of debt, maturities   longer than 90 days
    0 1,046 4,721 1,741

    Repayments of debt, maturities longer than   90 days
    0 (573) (814) (1,396)

    Common stock issued
    660 729 837 977

    Common stock repurchased
    (5,052) (3,867) (9,451) (5,407)

    Common stock cash dividends
    (1,363) (1,152) (2,481) (2,309)

    Excess tax benefits from stock-based   compensation
    4 15 9 24

    0 0 (25) 0

    Net cash used in financing

    (6,751) (4,277) (7,390) (6,467)


    Additions to property and equipment
    (491) (376) (1,055) (811)

    Acquisition of companies, net of cash   acquired
    (69) (63) (69) (102)

    Purchases of investments
    (5,896) (4,287) (13,313) (14,777)

    Maturities of investments
    1,836 1,896 2,706 5,394

    Sales of investments
    2,603 3,361 4,030 7,778

    Securities lending payable
    447 (623) 1,174 1,227

    Net cash used in investing

    (1,570) (92) (6,527) (1,291)

    Effect of exchange rates on cash and cash   equivalents
    (3) (1) 55 28

    Net change in cash and cash equivalents
    (4,138) 599 (1,482) 3,346
    Cash and cash equivalents, beginning of   period
    8,161 8,823 5,505 6,076

    Cash and cash equivalents, end of period
    $4,023 $9,422 $4,023 $9,422






    Segment Revenue and Operating Income (Loss)

    (In millions)


    Three Months Ended
    December 31,
    Six Months Ended
    December 31,
    2010 2009 2010 2009
    Windows & Windows Live Division $5,054 $7,193 $9,839 $10,063
    Server and Tools 4,390 3,978 8,349 7,523
    Online Services Division 691 579 1,218 1,067
    Microsoft Business Division 6,032 4,864 11,157 9,360
    Entertainment and Devices Division 3,698 2,381 5,493 3,815
    Unallocated and other 88 27 92 114

    Consolidated $19,953 $19,022 $36,148 $31,942

    Operating Income (Loss)
    Windows & Windows Live Division $3,251 $5,417 $6,573 $6,894
    Server and Tools 1,776 1,464 3,415 2,709
    Online Services Division (543) (463) (1,103) (940)
    Microsoft Business Division 3,965 2,947 7,340 5,744
    Entertainment and Devices Division 679 365 1,067 640
    Corporate-level activity (963) (1,217) (2,011) (2,052)

    Consolidated $8,165 $8,513 $15,281 $12,995

    Comment viewing options

    Select your preferred way to display the comments and click "Save settings" to activate your changes.
    Michael's picture

    Wall Street Silver Gold Theft and World Economic Collapse

    This is what the Complete and Total Economic Collapse of the United States and the World looks like on film.
    As seen in the movie Rollover 1981.
    The Federal Reserve and Alan Greenspan engineered the greatest financial catastrophe in history of the planet. The Federal Reserve must be audited and abolished! Audit the US gold in Fort Knox. Prosecute the Wall Street criminals. Reinstate Glass-Steagall. Enforcement of regulations is key.

    Malcolm Tucker's picture

    Egypt Boiling Over-Day 3 videos. It appears the government has lost control of the city of Suez which is the gateway to the Suez canal. I wonder if this will move commodity futures...

    Yen Cross's picture

    AKA Scarface. A member of my all time favorites.

    Michael's picture

    Wall street shot their wad today only to remain virtually flat.

    Michael's picture

    I made this video with Windows Movie Maker. Go figure.

    FunkyMonkeyBoy's picture

    They'll go to ANY lengths to keep this market up.

    The one in the same, US government/FED/Wall Street, is the most corrupt institution in history. The world will be brought down by the corrupt actions of a few.

    Cleanclog's picture

    Exactly, gov't asked them to report early to make the markets look GREAT as Egypt goes down tomorrow (or goes up depending on your perspective)

    Cleanclog's picture

    Uh-oh . . . is this failing to close above 12,000 and 1300?  Manipulation fail?  Could this spell the return of some willing to "lean against" the shill?

    ghostfaceinvestah's picture

    picked the wrong company to leak earnings, next time maybe AMZN

    Cleanclog's picture

    Uh Oh!!! Now Amazon disappoints on revenues.   A-ooo-ga!  Down periscope.

    spongeBOB's picture

    Don't they usually have like 2% margins ?

    SheepDog-One's picture

    OMG soon as you said Amazon, there it goes TANKING.

    whatsinaname's picture

    Nope, the crossover will happen on a Friday evening so the masses all go back home happy.

    nope-1004's picture

    MSFT must be set up for "automatic updates".


    weinerdog43's picture

    It's a feature, not a bug.

    knukles's picture

    I thought that it was the error line in the code where they phish and raid all of your sensitive files for your personal information and then re-post it on-line if you haven't purchased the opt-out package.

    TruthInSunshine's picture


    If MSFT was smart, they would have bought all the memory companies up, as their software is such a  bloated pig memory hog cluster.

    Alcoholic Native American's picture


    They rape public school, government, and and libraries.

    Bill Gates is a Robber Barron Bitch.

    PicassoInActions's picture

    You must be Ijob fan.

    If it was not for msft you probably will be using commodore 64 to type your comments here

    whatz that smell's picture

    DOW 12,000, bitchez!....

    ....whoopsie! my bad.

    ConfusedIdiot's picture

    Gosh, I meant after 4 eastern time.Sorry!


    flacon's picture

    My other computer uses UBUNTU (Linux). It is my survival laptop that doesn't get MS viruses.

    random shots's picture

    Got to have a reason to ramp the S&P 500 above 1300. Tyler, what happen to the weekly flows of equity mutual funds? Did not see it up yesterday. 

    Ragnarok's picture

    Bang Da Hoe/Close!

    Sudden Debt's picture

    Is everybody Buying Ipads, Iphone, Desktops, Laptops and all the software to go arround so they can GOOGLE and trip on Facebook and Twitter ALL DAY LONG?i!




    Dell will have a blownout Q to I guess.



    Ragnarok's picture

    A ZH poster around Christmas noted that he counted 7 apple products around the Tree. Don't forget about the accessories.

    Sudden Debt's picture

    Last week my boss wanted me to look into equipping our sales force with Ipads to replace their laptops. Which they use for SAP, CRM, BW... you know the basics which he thought would be so easely installed on a Ipad.


    First I laughed for 5 minutes and I didn't take him serious.

    Then he gave me the look "YOU ARE A EMPLOYEE, I AM THE BOSS" + the lazy eye.

    Now I officially am looking into it. I already did a test with 5 reps. to test that crap and well... surprise surprise, it's useless for that kind of work and forget about the tools.

    I told him we couldn't install any soft. on it => response:  Cancel their software. Let them do it all by web apps.

    I proposed the Dell Tablet that looks really classy and works just great and has a 4 inches bigger screen => to big for the nut.

    Now I'm looking into cloud applications to run on that crap (which is really to small to work with, let allone show a demo on) and well... if he wants it, it'll cost him about a million in software modifications without any advantages.

    Ever tried to run apps on the safari app on a Ipad?!



    Cognitive Dissonance's picture

    You don't work. Everything else you said was the truth. :>)

    Sudden Debt's picture

    I'm in Marketing so I have about 6 hours of leisure time a day :)

    And as long as the paychecks keep comming in, I call it work :)

    Cognitive Dissonance's picture

    Sounds perfectly reasonable to me.

    cossack55's picture

    An old Soviet favorite:

    We pretend to work and they pretend to pay us.

    Circlehook's picture

    If you were only paid in silver, you would have it made!

    iDealMeat's picture


    no..  you lie...  Obviously from your avatar, you're in IT. You have 7+ hrs of leisure time a day.. But you appear frazzled and have them convinced you're working 24x7..

    well played.

    crosey's picture

    FD, you're funny as hell.  A Marketing guy who tells the truth!  Oh my....are we all "getting religion" these days!

    So why do you think your boss is getting the tech erection this time?  Is your competition feigning wild increases in sales because they have all of their new toys?

    Ragnarok's picture

    I'm starting to realize that the biggest decision I want to make in a day is what goat to kill for super.

    Cognitive Dissonance's picture

    I'm dying to ask a few question here.....but something tells me I'd better not.

    Carry on. :>)

    Michael's picture

    My ultimate dream is to be able to buy an Apple product made in the USA.

    TruthInSunshine's picture

    Yeah, well, if our 'massers get their way, Americans will be working for a lower wage than Foxconn workers in a decade.

    Don't give up the dream.

    Bruno the Bear's picture

    I had a similar experience - run client server stuff on an iPad.  Have several VMware servers and we fired up Server 2008 Remote Desktop Services and it works - use WYSE Pocket Cloud as the app to interact with RDS.


    Plan to move to VMware View when we have time to figure that out.


    However, iPads work OK with a virtual desktop.  Only have 50 iPad users though and I have no idea if this approach scales up.  But at least I don't need to replace our enterprise software.


    Like not fighting the FED, I have given up fighting people who want to use Apple products.





    Sudden Debt's picture

    WAW! CHECKED IT OUT AND IS SUPER!! +100000000000000000000000000000000


    Can you send me a email on: ?


    Maybe we can share some knowledge.

    Sudden Debt's picture

    WAW man, you rock!

    They also work with CITRIX :) I'm so going to score next week :)


    4xaddict's picture

    They're pretty good running remote desktop software. I use my iPad to trade and also do very processor intensive Adobe design work via log me in and it works great.

    Running apps like that locally will give you and the iPads an apoplexy.

    Orly's picture

    So does USDJPY start to tank in the overnight and drop off after the GDP report?  How do you see it playing out?

    Pinkfleud's picture

    I'm sure you meant " Appleplexy " lol