Microsoft posted its first quarterly loss in its 26 years as apublic company on Thursday as it declared a struggling online ad business abust and prepared for one of the biggest product updates in its history.
The software company had warned two weeks ago that it would take a $6.2 billioncharge in the April-June quarter because its 2007 purchase of online ad serviceaQuantive failed to help it compete with Google Inc. The amount reflected thebulk of the $6.3 billion acquisition cost.
The online ad business remains just a tiny part of Microsoft — comprising just4 percent of its annual revenue. Most of the company's sales come from itsOffice suite of productivity software, Windows operating system and,increasingly, computer servers.
Upbeat business software and server sales in the quarter helped offset a flatmarket for personal computers, which had put a damper on Windows sales. Takenas a whole, the software giant's results beat analyst expectations.
Shares rose 2.4 percent to $31.39 in after-hours trading following the earningsannouncement.
Including the big write-down on aQuantive, Microsoft booked a $492 million lossin the fiscal fourth quarter, or 6 cents a share. That compares with earningsof $5.9 billion, or 69 cents, a year ago.
Revenue rose 4 percent to $18.06 billion.
Excluding the adjustment and the deferral of some revenue related to itsupcoming Windows 8 operating system, earnings came to 73 cents per share.
Analysts polled by FactSet were looking for 62 cents per share of earnings onrevenue of $18.15 billion.
"The quarter was pretty much in line across major segments of thebusiness," Nomura analyst Rick Sherlund said.
Microsoft's fortunes are now tied to the Oct. 26 release of Windows 8, the mostextreme redesign of the company's flagship operating system since 1995. Windows8 will feature a new look and boast new technology that will enable theoperating system to work on touch-controlled tablet computers, as well asMicrosoft's traditional stronghold of desktop and laptop computers. Inconjunction with Windows 8, Microsoft is planning to release its own tablet,the Surface.
A revamped version of Office, which bundles word processing, spreadsheet andemail programs, is also in the works. Earlier this week, Microsoft previewedhow the next version of Office will work on tablet computers running on Windows8.
The company was conservative forecasting how much the product revamps will helpdrive revenue.
Chief Financial Officer Peter Klein told analysts that for the coming year,"We expect Windows revenue to be roughly in line with the PC market"which it said was flat in the last quarter and is expected to continue that wayin the three months through September.
Even if Windows revenue is flat, that will be an improvement since revenue inthe division has now dropped in five of the past seven quarters. It fell 13percent in the quarter to $4.1 billion.
Microsoft excluded from its forecast any extra Windows sales that would comefrom its Surface tablet, for which it gave no outlook.
With Windows 8-powered devices still a few months away, some prospective PCbuyers have been postponing their purchases so they can buy the latesttechnology from Microsoft this fall. Others who buy certain machines runningWindows 7 will be able to upgrade to Windows 8 for $15 for a limited period.
That upgrade offer means that Microsoft couldn't book all the revenueassociated with Windows 7, causing it to defer some revenue into laterquarters.
Thursday's loss was the first for Redmond, Washington-based Microsofit sincethe company went public in March 1986.
The $6.2 billion charge is a non-cash adjustment, which companies do when thevalue of their assets decline. Companies have to review their assets once ayear, and the just-ended quarter is Microsoft's final one for fiscal 2012.
AQuantive was Microsoft's most expensive purchase at the time, and was supposedto help it mount a more serious challenge to Google in online ads.
But the online ad division continued to post losses — totaling more than $9billion since the purchase, not including the charge.
By contrast, Google has widened its lead, thanks in part to its purchase ofDoubleClick for $3.2 billion about eight months after the aQuantive deal.
Google's search engine, a major vehicle for selling ads, has remained strong,while Microsoft's Bing search engine saw its market share drop slightly to 26percent, from 27 percent a year ago. That includes searches through Yahoo Inc.,which has been using Microsoft's search technology for nearly two years.