Fiscal 2013, Q4 Earnings and the Trajectory - and Tragedy - of Microsoft


Microsoft provided its fiscal 2013 full year and Q4 results yesterday evening and while it is impossible to say that we or anyone else should be shocked by what the company reported, at the end of the day it is still hard to get one's head around it all. It is clear from the reported results that Microsoft itself has to come around to the fact that the PC era is coming to a close.

Yes, the enterprise side of things will continue to move forward - and that is of course where Microsoft's core revenue streams remain. But there is more to the PC business than the enterprise and that end of it - specifically the consumer end of it, has reached the end of the line. The consumer PC business is now in permanent decline but as much as Microsoft has worked to acknowledge this, the company remains steadfastly an enterprise company - especially as long as CEO Steve Ballmer continues to hold the reins of the company - and he will continue to do so and has the full blessings of Bill Gates on this front.

Much has been said about the recent re-org Ballmer is now moving to put in place. We ourselves have noted that the Microsoft re-org is much ado about absolutely nothing. Since Ballmer remains central to the re-org in the end nothing really changes and we do not foresee a Microsoft that becomes a true "devices" player that will attract substantial interest from the consumer market - and more specifically from the consumer market that no longer buys PCs. It will be an enormously long row to hoe. As a consumer market farmer Microsoft appears to us to be lost - though we acknowledge that the Xbox and Kinect duo are pretty cool - just not cool enough to even come close to covering for the PC business declines.

Once that row is hoed the fields need to be fertilized and "seeded." Microsoft had a huge opportunity to do some serious seeding - specifically with its Surface tablets - but failed grievously to do so. And it is now fully paying the price for its utter stupidity in how Microsoft mishandled the market delivery of the Surface tablets. We've noted all the issues about this in depth - but it is well worth repeating that it is at Ballmer's desk that the buck must stop on where the fault lies for screwing up so badly on Surface marketing - and on Surface pricing.

We are not overstating the case here. The mishandling of the Surface is a serious strategic error - quite possibly a fatal mistake with regard to Microsoft's consumer business futures. The immediate impact of Surface failure is that Microsoft has had to take a $900 million Surface write down for the fiscal year. This is merely the tactical financial result of its ineptness. It is but one component of a variety of tactical screw-ups that will collectively and significantly harm Microsoft's strategies going forward.

Shown below are the Q4 2013 numbers.

Truth be told, they look pretty darn good - but the positives are all to be found on the enterprise side, of course. Microsoft CFO Amy Hood said, "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. We also saw increasing consumer demand for services like Office 365,, Skype, and Xbox LIVE. While we have work ahead of us, we are making the focused investments needed to deliver on long-term growth opportunities like cloud services."

Shown below are the full year fiscal 2013 numbers.

Come on - whether you use $77.3 billion or $73.7 billion in total revenue for your reference those are some damn heady numbers. We're sure of course that Ballmer would say to us, "When you deliver $77 billion come and see me." The issue however is not where Microsoft is today but rather where it will be tomorrow.

While we are confident that both Google and Apple will deliver sufficient innovation - and more importantly highly effective management of that innovation in the marketplace, we have no such confidence that Microsoft will do so. In fact, the indications are clearly that Microsoft won't be able to do so.

Let's clarify that though - our lack of confidence is entirely centered on the consumer side of the equation. The enterprise side will continue to save Microsoft in the foreseeable future no matter how badly it messes up on the consumer end of things.

But that is all Microsoft will have to lay claim to. For us that is not only the clear trajectory of the company but represents as well the clear tragedy of Microsoft's future.

Edited by Rachel Ramsey

TechZone360 Senior Editor

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