Ahead of the Bell: Possible 4Q loss at Microsoft

AP News
Posted: Jul 19, 2012 7:03 AM

REDMOND, Wash. (AP) — Microsoft may be reporting its first quarterly loss as a public company because of a flopped purchase of an online ad company.

The software maker will release its latest quarterly results after the market closes on Thursday.

The fiscal fourth-quarter numbers will include a $6.2 billion charge to reflect that Microsoft's 2007 acquisition of aQuantive hasn't yielded the returns envisioned by management.

Microsoft Corp. paid $6.3 billion for aQuantive as part of its effort to lure Internet advertisers away from Google Inc. But since the deal closed, Google has expanded its share of the online ad market while Microsoft's online division has suffered billions of dollars in losses.

The non-cash charge is so large that it could wipe out Microsoft's earnings from April through June. Analysts polled by FactSet had predicted Microsoft would earn about $5.3 billion in the three-month span. That doesn't reflect the aQuantive charge. Microsoft didn't spell out how its quarterly results would be affected when it announced the charge on July 2.

Microsoft, which is based in Redmond, Wash., has never previously reported a quarterly loss since the company's initial public offering in March 1986. The aQuantive-driven setback isn't likely to faze investors, who usually focus on what lies ahead for a company instead of dwelling on past mistakes. But it does underscore the company's struggles in online ads.

Microsoft's fortunes are instead tied to the October release of Windows 8, the most extreme redesign of the company's flagship operating system since 1995. Windows 8 will feature a new look that will show applications in a mosaic of tiles and boast new technology that will enable the operating system to work on touch-controlled tablet computers, as well as its traditional stronghold on desktop and laptop computers.

A revamped version of another lucrative franchise, Microsoft's Office software that bundles word processing, spreadsheet and email programs, is also in the pipeline. Earlier this week, Microsoft previewed how the next version of Office, expected to be released next year, will work on tablet computers running on Windows 8.

With Windows 8-powered devices still a few months away, some prospective PC buyers have been postponing their purchases so they can buy the latest technology from Microsoft this fall. That's contributed to a slowdown in PC sales, and revenue in Microsoft's Windows division has dropped in four of the past six quarters.

The pressure won't be on Microsoft until Windows 8 is released on Oct. 26. Investors will then be closely watching to see if the new operating system delivers on its goal of making Microsoft a significant player in the rapidly growing tablet computer market currently dominated by Apple Inc.'s iPad, while also helping boost PC sales.

The high hopes for Windows 8 are the main reason Microsoft's stock has climbed about 17 percent this year.

Excluding the aQuantive charge and certain other items, analysts surveyed by FactSet expect Microsoft to earn 62 cents per share on revenue of $18.2 billion. A year ago, Microsoft earned $5.9 billion, or 69 cents per share, on revenue of $17.4 billion.