Microsoft Swings to Profit

Microsoft Corp. (MSFT) swung to a fiscal fourth-quarter profit as a hefty write-down weighed on the software giant's year-earlier results and sales in its servers and business divisions increased.

Shares fell 3.4% to $34.22 after hours as results fell short of analyst expectations. Through the close, the stock is up 16% over the past 12 months.

The latest results come a week after the company unveiled a broad reorganization that aims to break down barriers between its internal units and potential partners outside the company. The reshuffling strips away a structure based around divisions overseeing particular products, such as Microsoft Windows, the Xbox videogame console or the Office bundle of workplace software, and instead imposes a horizontal scheme with managers that oversee different kinds of functions--like engineering, marketing and finance--that would be applied to multiple product lines.

About a year ago, Microsoft began portraying itself less as a producer of operating systems and application software and more as a creator of devices and Web services. Microsoft had already developed successful combinations of hardware and software, like its Xbox videogame console, but in other cases has been hurt by largely independent product units working in isolation

Microsoft has been squeezed by a shift in consumer and business spending to tablets and smartphones and away from PCs. The company, whose software is on a majority of the world's PCs, last fall introduced Windows 8, a completely overhauled operating system with touch-screen capabilities. However, Windows 8 received mixed reviews from PC users.

"While our fourth-quarter results were impacted by the decline in the PC market, we continue to see strong demand for our enterprise and cloud offerings, resulting in a record unearned revenue balance this quarter," said Chief Financial Officer Amy Hood. "We also saw increasing consumer demand for services like Office 365, Outlook.com, Skype, and Xbox Live."

For the quarter ended June 30, Microsoft reported a profit of $4.97 billion, or 59 cents a share, compared with a year-earlier loss of $492 million, or six cents a share.

The latest results include a $900 million charge related to Surface RT inventory adjustments and reflect the recognition of $782 million of previously deferred revenue related to an Office upgrade promotion. The year-ago period included a $6.19 billion goodwill write-down in its online services division and the deferral of $540 million of revenue related to a Windows 8 upgrade promotion. Adjusted per-share earnings slipped to 52 cents.

Revenue rose 10% to $19.9 billion. Adjusted revenue totaled $19.11 billion.

Analysts polled by Thomson Reuters most recently projected earnings of 75 cents a share and revenue of $20.73 billion.

Microsoft's Windows and Windows Live division saw revenue rise 6.2%. Excluding the impact of the prior year Windows Upgrade Offer revenue deferral, the division's adjusted revenue fell 6%.

Revenue for the company's servers and tools products, which form the backbone of enterprise networks and private clouds, increased 9%.

At the business division, which earns most of its sales from Microsoft Office, sales were up 14%.

Sales at the entertainment-and-devices business, which houses the Xbox video game console, jumped 7.5%

In online services, which includes the company's Bing search engine, revenue was up 9.4%.

Write to Nathalie Tadena at [e-mail]

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