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There is a first time for everything, as we learned from the drop in Microsoft profits the company reported yesterday (Thursday) after market close.
Now the company hopes its crop of new products launching this fall will not only boost profits, but edge out the strengthening competition.
"Microsoft is a very strong enterprise player," Tony Ursillo, an analyst at Loomis Sayles & Co. told Bloomberg News following the report. "There was lots of evidence in tonight's report that they are a force to be reckoned with in the enterprise."
Where Did Microsoft Profits Go?
The quarterly loss came as the Redmond, WA – based global tech giant reported an accounting write down to reflect weak online ad business.
The software giant cautioned it was taking a $6.19 billion charge as its 2007 purchase of online ad service aQuantive hasn't produced the returns management had visualized.
Total losses for the quarter totaled $492 million, or 6 cents per share, a stark reversal from the same quarter a year ago when the tech behemoth reported earnings of 69 cents per share.
The most ominous development was that revenue for its trademark Windows fell 13% for the fiscal period ended June 30. The drop in Windows was attributed to the overall weak PC market.
"Office and Windows are dying," Money Morning Chief Investment Strategist Keith Fitz-Gerald said earlier this month. "Once the business world's de facto standard, both are being replaced by cheap, easy-to-operate software, much of which is actually free as well as compatible."
Yet, the quarter wasn't all bad. Revenue increased 4% year-over-year to $18.06 billion. Excluding the aQuantive charge, Microsoft posted earnings of 67 cents a share, beating estimates of 62 cents.
In addition, Microsoft enjoyed strong gains in multiyear software contracts as many companies placed future dated orders for its new souped up Office version to be released Oct. 26, and new database software.
Trying to focus on the positive, CEO Steve Ballmer told investors that there was a great deal to look forward to for the rest of the year. On tap in the coming months are the high-profile launches of Office 15 and Windows 8.
"We're fast approaching the most exciting launch season in Microsoft history," Ballmer said in a statement.
But will these improvements be enough to survive in the competitive tech world?
Microsoft Profits: Looking Forward
Coming up this year is Microsoft's largest update to Windows in nearly 20 years, as well as the highly anticipated debut of the Surface, Microsoft's first PC tablet.
Beginning this fall, Microsoft will begin rolling out new versions of its top cash generators, Windows and the Office bundle of e-mail and document software, along with revamped programs for computer servers and for Microsoft's Windows iPhone software.
Ballmer and company have high hopes for Windows 8, Microsoft's operating system – and cash cow – that has been overhauled to be more user- friendly on fast-growing touch screen devices.
""Windows 8 has to work for them," Loomis' Ursillo said. "Tablets are a big phenomenon on the consumer side, and it's a big pool of revenue that Microsoft needs to participate in."
As Microsoft attempts to play catch up with the likes of Apple Inc. (Nasdaq: AAPL) and Google Inc. (Nasdaq: GOOG) the stakes are high. Its rivals have had a good head start in the fast growing tablet and smartphone market.
The Surface will compete with Apple's blockbuster iPad, which in less than two years following its debut sold a whopping 55 million units. Sales of the iPad on a year-to-year basis are growing by more than 100%.
That kind of growth was too steep for Microsoft to ignore . While Apple dominates the tablet market, Microsoft thinks there's room for some competition. According to IHS iSuppli Market Research, global tablet shipments will surpass 275 million by 2013, up from just 17.4 million in 2010.
The high hopes for future Microsoft profits have pushed shares up 18% year- to- date. The stock rose 2.1% after hours, but was down 1% in Friday morning trading.
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- The New York Times:
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