As Microsoft makes its first quarterly loss since 1986, the market waits for its regrouping moves

Last week’s news concerning Microsoft’s first quarterly loss since it listed in 1986 highlights just how the business landscape has changed.

July 27, 2012

Last week’s news concerning Microsoft’s first quarterly loss since it listed in 1986 highlights just how the business landscape has changed. It throws a sobering curved ball into the fray and allows us to reflect on  just how the once nigh-invincible behemoth – Microsoft- seemed to fly above the rest of the pack, and was regarded as the leading company in the world. Oh, how the mighty have fallen. Alright, perhaps not fallen – but certainly stumbled. Now we have the revival of Apple – who once lost its way – and the emergence of technology giants like Google and Facebook. There are some big kids squaring up in the technology sandpit now – and software vendors are moving into the hardware domain and hardware vendors are moving into the software domain. There is a battle on for turf.

Microsoft took the profit blow mainly due to the inexorable worldwide move into the online world – and Microsoft had to write down the value of its ailing online unit. However, it is not time, yet, to place an epitaph in the Wall Street journal bemoaning the death of Microsoft : excluding the multi-billion dollar write down – which was indicated earlier in the month – and factoring in some deferred Windows revenue, the world’s (still largest) software company actually exceeded Wall Street’s expectations.

Microsoft reported a net loss of $492 million for its fiscal fourth quarter , compared with a profit of $5,87 billion in the year-ago quarter. While the fundamentals of Microsoft remain strong – because we all know PC sales are suffering somewhat – there are some warning signs of shifting sands, exacerbated by the rigours of the recent global financial meltdown.

But Microsoft is certainly regrouping and chasing new revenue streams in an effort to stay at the top of the totem pole. The company’s recent move into the vigorous and profitable tablet market – with the launch of its Surface tablet – is evidence of this. By bringing out its own hardware, Microsoft runs the risk of alienating OEMs, or hardware partners. But the allure of gaining a foothold in a market that is still on a growth curve was seemingly too tempting for the company.  Although Microsoft has the knack for good marketing – and it will have the added benefit to be able to exploit all the feature of Windows 8-  the jury is out on just how much market share it will snatch from Apple and its iPads.

One expert, Christopher Riley, MD of The Notebook Company – and a long-standing Inkworks client (initially with BE Agency) – believes, however, that if Microsoft secures 5% of the tablet market in the next two years it “will be a lot”.

One thing is for sure, the unfolding turf wars between the technology giants is going to be exceedingly fierce, and exceedingly interesting. Blood will flow – and maybe some more red ink.

Bryn Evans, Inkworks