Microsoft and Premature Hari Kari, Death of Guidance (MSFT)

Microsoft Corp. (NASDAQ: MSFT) was not supposed to report earnings until after the close of trading.  But something happened for the first time we have ever seen.  The company unexpectedly released earnings at 9:00 AM EST.  The news was bad, and if you work there it may be really bad news.

Earnings fell 6% to $0.47 EPS and the revenuegain was 2% to $16.63 billion.  First Call estimates were $0.49 EPS and$17.08 billion in revenue.

The breakdown is not much prettier:

• Client revenue declined 8%, from weak PC sales and from lower priced netbooks;
• Server & Tools revenue grew of 15%;
• Entertainment and Devices revenue grew 3% after a record 6 million units of Xbox 360 sold in the holiday quarter.

Microsoft is cutting cap-ex and is announcing layoffs of 5,000 jobs inR&D, marketing, sales, finance, legal, HR, and IT over the next 18months.  Some 1,400 jobs are being cut today. The company believes thatit can save $1.5 billion and reduce fiscal year 2009 cap-ex by $700million.

The guidance is down, and unsurprisingly not very firm.  The company isplanning for economic uncertainty to continue through the remainder ofthe fiscal year.  It now believes this will "almost certainly leadingto lower revenue and earnings for the second half relative to theprevious year."  The company said it can no longer offer quantitativerevenue and earnings guidance.

With the trends we have been following, none of this is a huge surprise.  And none of its is pretty.  Not at all.

Shares are down 7% pre-market at $17.99 on more than 4 million shares as of 9:15 AM EST.

Jon C. Ogg
January 22, 2009