The following is a guest post from Erin Laing from CXTEC
Although Microsoft’s net profit in April to June was $4.3bn, 41% higher than a year earlier when Microsoft spent $1bn fixing faulty Xbox consoles, analysts expect the next three months to hit Microsoft’s earnings in a very harsh way. In the current quarter, predicted earnings of 47 to 48 cents per share are less than the expected 49 cents, and shares have tumbled 5.89% to close at $25.86.
According to an interview with Jean Philippe Courtois, head of all Microsoft outside of North America, Microsoft has four pillars of growth production: a software sector producing operating systems such as tools like Office, a hardware sector creating entertainment devices such as Xbox consoles and peripherals, a web sector creating online ecosystems such as Live Mesh, and a server sector focusing on producing Microsoft’s Internet Information Server (IIS).
Microsoft describes itself as software and services firm. It currently is responsible for an ecosystem that encompasses hundreds of millions of PCs which use network cables or wireless routers to connect online. It makes money by charging for a license each time a new version of Windows is installed. Microsoft said its online division, which makes most of its money from online advertising, lost over $488 million last quarter. Chief financial officer Chris Liddell believes this area is seeing the direct impact from the economic slowdown. This loss may have also been due to the cost of the time spent trying to buy Yahoo and made its latest attempt via a joint offer with investor Carl Icahn last weekend. The back and forth between the two giants is very distracting for investors and employers and even advertisers according to analyst Sid Parakh.
The firm has also been dogged by repeated accusations against Vista as a failure. Mr. Courtois admits that the mistakes had been made at the launch but also pointed out that over 180 million licenses have been sold, ahead of sales for XP at the same time in that product’s life cycle.
Although Microsoft has proved to be a slump in areas such as search and advertising, they plan to be looking into areas of specialized and niche search in the future, in trying to compete with Google in the core search market. Health and education are also two very powerful markets being investigated by Microsoft, as they are areas of increased priority by most governments around the world.