Microsoft share price down, loses momentum in software sales

Microsoft Corp announced on Monday disappointing results from its core products as the technology giant shifts it focus to cloud computing.

The company reported a 114% revenue increase in its commercial cloud business during the second financial quarter, boosted by strong performance of Office 365, which scored a quarter-on-quarter gain of 30% in subscribers to 9.2 million. Azure and Dynamic CRM Online also helped the division to post it sixth consecutive quarter of increases and reach an annual run rate of $5.5 billion.

However the good news were more that offset by the lower-than-expected results in commercial-licensing revenue, which includes sales of companys star Windows operating system, Office products and business server software.

The worlds largest software company announced a 2% drop in its biggest source of revenue to $10.7 billion during the three months to December 31. Analyst had expected a commercial-licensing revenue of $10.9 billion, according to a survey compiled by Bloomberg.

Last year the company announced it will end the support for its Windows XP operating system, prompting business users to upgrade to a newer version, which has been driving sales. However, Chief Financial Officer Amy Hood said that period is over, party blaming the fact for the decline in sales.

Ms. Hood also outlined the fall in sales of personal computers, which are often bundled with software and are also a driver of Windows and Office sales.

Additionally, Ms. Hood said the company is experiencing difficulties in China, Russia and Japan, where sales are also expected to keep declining in the next quarter. Another contributor to the companys future performance will be the stronger dollar, Microsoft said unfavorable exchange rates would reduce revenue growth by 4 percentage points in the third fiscal quarter.

A robust dollar usually hurts US companies which sell goods or services abroad denominated in the countrys domestic currency. However, in line with reporting regulations businesses are required to convert its revenue back to US dollars and thus the figures are reduced.

All-in-all Microsoft reported a revenue of $26.47 billion for the quarter, better than the $24.5 billion a year earlier. Net income stood at $5.86 billion, or $0.71 per share, compared with the $6.58 billion, or $0.78 a share, reported last year.

“Microsoft is continuing to transform, executing against our strategic priorities and extending our cloud leadership,” said Satya Nadella, chief executive officer of Microsoft. “We are taking bold steps forward across our business, and specifically with Windows 10, to deliver new experiences, new categories, and new opportunities to our customers.”

Microsoft Corp lost 0.36% on Monday and closed at $47.01 on the NASDAQ, marking a one-year increase of 27.73%. The company is valued at $388.90 billion. On Tuesday the stock fell 4.15% during pre-market trading at 9:13 GMT.

According to CNN Money, the 34 analysts offering 12-month price forecasts for Microsoft have a median target of $52.00, with a high estimate of $58.00 and a low estimate of $39.00. The median estimate represents a 10.61% increase from the last close price.