Microsoft is warning investors that revenue and profits are not going to be killer great for the rest of 2015.
The stock is down more than 4% after hours.
After Microsoft's spectacular Windows 10 event, where it wowed journalists with cool new products such as HoloLens, executives were glum on the quarterly earnings call.
They issued all sorts of warnings as to why Microsoft's numbers will likely be soft.
The first reason, mentioned repeatedly, was that businesses are no longer frantically upgrading their XP PCs anymore. Microsoft ended support of XP last year, forcing all companies using the old operating system to move to a newer version already. Most moved to Windows 7. But now, buying patterns have returned to their normal "pre-XP" levels. That means that Windows sales to businesses will shrink compared to the boom going on last year.
There were other reasons for concern:
- Windows 10 will be a free upgrade to those who have a Windows 7 or Windows 8 machine, now. So no revenue there, although consumer upgrade revenue hasn't been a huge factor in Microsoft's earnings since the 1990s -- it usually peaks in the first quarter after a new release, then drops fast after that.
- Microsoft is giving Windows away for free to manufacturers of small Windows tablets, so no revenue there.
- The company mentioned several times on its earnings call that it's having trouble with sales in the big growth market of China. It is also struggling in Japan.
- The strong dollar means unfavorable foreign-exchange rates compared with last year. That will hurt revenue to the tune of 4%, Microsoft warned.
- As enterprises move to the cloud version of Office, they pay less up front. They should pay more over time, but that won't show up for a while.
On top of that, as we previously reported, Microsoft is also bundling in cloud services for little to no cost to entice enterprises to use its cloud. While it is starting to offer more expensive cloud services — ones that guarantee certain performance guidance, or have extra features — it will take a while before the toe-dippers want to spend on that stuff.
Meanwhile, Microsoft still needs to keep spending to build out its cloud infrastructure to prepare for the day when all of their customers will use it. It spent $1.5 billion on that last quarter.
However, Microsoft may yet surprise us next quarter.
CFO Amy Hood offered guidance on most of the business units. Seeking Alpha's Eric Jhonsa added all of that guidance up. Next quarter, Microsoft expects $20.6 billion to $21.4 billion, below a $23.8 billion total revenue consensus. However that doesn't include "corporate/other" revenue, which totaled $314 million in the quarter Microsoft just reported.
On the positive side, Hood also says she thinks expenses will come in $1 billion less, guiding to $33.2 billion to $33.6 billion.
