Blog Post

Microsoft CFO: ‘Some Signs That We Have Seen The Worst’

Microsoft (NSDQ: MSFT) missed analysts’ estimates during the quarter — but CFO Chris Liddell nevertheless said “there are some signs that we may have seen the worst.” It was a more positive sentiment than Microsoft executives have made in the past. He said that some of the company’s businesses had seen “sequential unit increases” and there was “sequential stabilization in some of our key businesses.” He said there was “potential for improvement” this fiscal year, although the timing was uncertain.

MSN and search: The 13 percent drop in the company’s online services division was driven by a 14 percent drop in online advertising sales largely due to weakness in display ads, executives said. Search revenue, however, was flat compared to a year ago and page views were up.

Going ahead, Liddell said he expected the division’s performance to mirror the overall online advertising market, with weak results next quarter. However, he said he hoped to see the company’s search market share increase through the next year. Rumors continue to swirl that Microsoft is close to reaching some sort of search partnership with Yahoo (NSDQ: YHOO). The WSJ reported this afternoon that Yahoo’s board is meeting today to discuss the possibility.

Entertainment and devices: Executives said that Xbox 360 sales were “solid,” with attach rates also up. But Liddell said he believed console sales and attach rates would moderate over the next year.

PCs and servers: The business PC market is of course weak with companies cutting back on IT purchases, while the consumer PC market was “flat to down.” Netbooks continued to make up an increasing percentage of PC sales, accounting for 11 percent of the market. Liddell said performance at the company’s server and tools division would not improve until companies started to increase their IT spending again.

Whil the release this fall of Windows 7 should help results this fiscal year, the next version of Office will have less of an impact, Liddell said, since it’s coming later in the fiscal year.

Cash: Microsoft once again did not buy back stock this quarter. Asked to explain, Liddell said, “In the last couple of quarters, we felt we couldn’t see the bottom. I think we’re at least seeing signs now of the bottom.”