Microsoft Earnings Meet Expectations, But Glory Days Are Gone

Microsoft (MSFT) investors seemed to be bracing for bad news earlier today ahead of the earnings announcement. But the company met analyst expectations with 68 cents per share earnings. Microsoft was a little ahead of the consensus on revenue with $17.37 billion for the quarter that ended in September, versus the expected $17.24 billion. That's 7 percent revenue growth year-over-year and margins are still strong at 78.3 percent, though down in from 80.6 percent last year. Microsoft keeps delivering, which gets to be a feat with sluggish PC sales and so much focus on mobile as the future of computing, where it's been lagging. And yet, investors seem to assume the worst.

Why is Microsoft becoming the Rodney Dangerfield of the tech set? Because the company has matured and changed. It's no longer a growth comet. Once, the public might have forgiven Microsoft's management. But Apple (APPL) has shown that large doesn't necessarily mean creaky. And Microsoft has yet to show strong signs that it can shake off the lethargy.

Microsoft still rules percentage of profit
It seems odd to criticize Microsoft based on financial performance. This most recent quarter, 33 cents of every dollar was net income. Compare that to Apple's most recent blowout quarter when profit was 23.4 percent -- almost 10 percentage points less. Want to look at things before tax strategies have a say? More than 40 percent of Microsoft's revenue wound up as operating income, versus not quite 31 percent for Apple.

However, Apple delivers what tech watchers expect: growth. It's managed an amazing rocket ride of very large double-digit growth time after time, largely because it developed a dominant position in the growth area of mobile. Microsoft ... didn't.

Working a tougher field
Part of the comparison problem comes in the different areas in which the two companies work. Much of Microsoft's strength is in the corporate IT world, where purchasing hasn't had the robust lift of consumers adopting smartphones and tablets. Here's a breakout by segment revenue from Microsoft's 10-Q:

Windows was up 2.7 percent, which might seem anemic but still a good change for the company from last quarter. All other product categories were up. And yet, it's not exciting for investors. According to Google Finance, the stock was down 0.59 percent in after hours trading.

The problem isn't so much what Microsoft has just done, but what it did before. The company has blown every previous chance in smartphones. No matter how much of an improvement Windows Phone 7 was, it hasn't been enough to draw consumers in. There still is no viable Windows tablet, although there should be at this point.

For all it has tried to sex up its product line, Microsoft is still the nerd in white socks and heavy black shoes trying to get a date and failing miserably. Growth is still relatively small compared to the "cool" tech companies. And, so far, it doesn't look as though that will change in the near future.

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