Microsoft reports first loss as Google continues to soar

Microsoft has posted its first quarterly loss in 26 years as a public company as it declared a struggling online ad business a bust and released one of the biggest product updates in its history.

The online ad business remains just a tiny part of Microsoft — comprising just 4 per cent of its annual revenue. Most of the company's sales come from its Office suite of productivity software, Windows operating system and, increasingly, computer servers.

Upbeat business software and server sales in the quarter helped offset a flat market for personal computers, which had put a damper on Windows sales, in the wake of the consumer and business loveaffair with the iPad and increaseingly, Android-powered tablets.  Nevertheless it could have been worse. Taken in its entirety, the software giant's results beat analyst expectations.

The big write-down on aQuantive

Including the big write-down on aQuantive, Microsoft booked a $US492 million loss in the fiscal fourth quarter. That compares with revenues of $US5.9 billion, a year ago. Revenue rose 4 percent to $US18.06 billion.

Microsoft's fortunes are now tied to the October 26 release of Windows 8, the most extreme redesign of the company's flagship operating system since 1995. Windows 8 will feature a new look and boast new innovation that will enable the operating system to work on touch-controlled tablet computers, as then as Microsoft's traditional stronghold of desktop and laptop computers. In conjunction with Windows 8, Microsoft is planning to release its own tablet, the Surface.

Revamped version of Office

A revamped version of Office, which bundles word processing, spreadsheet and email programs with cloud computing, is coming and represents the company's largest attempt at grasping its dominant marketshare and protecting its main cashcow. Before this week, Microsoft previewed how the at once version of Office will work on tablet computers running on Windows 8 at an event in San Francisco.

Even if Windows revenue is flat, that will be an improvement since revenue in the division has now dropped in five of the past seven quarters. It fell 13 per cent in the quarter to $4.1 billion.

Microsoft excluded from its forecast any extra Windows sales that would come from its Surface tablet, for which it gave no outlook. When launching tablet last month, the company revealed it would make its own hardware, leaving long-term partners just as Dell and HP, who had been waiting for Windows 8 to provide Windows-based tablet devices for corporate customers, aghast at the news.

Few months away

With Windows 8-powered devices nevertheless a few months away, some prospective PC buyers have been postponing their purchases so they can buy the latest research from Microsoft this fall. Others who buy machines running Windows 7 will be able to upgrade to Windows 8 for $15 for a limited period. Other Windows users will be able to upgrade for $39.99

That upgrade offer means that Microsoft couldn't book all the revenue associated with Windows 7, causing it to defer some revenue into later quarters.

The second quarter

Google announced its core internet business boosted revenue 21 per cent in the second quarter, during its recently acquired Motorola Mobility business raised Google's overall revenue to $US12.21 billion.

Google closed its $US12.5 billion acquisition of Motorola in mid-May, giving it a foothold in the fiercely competitive smartphone hardware business, dominated by companies just as Apple and Samsung. Microsoft has been trying to regain a slice of that market with the revamp of its Windows Phone and partnership with Nokia.

Google said the revenue at its existing Internet business totaled $US10.96 billion in the second quarter, compared with $US9 billion in the year-ago period. Revenue at Motorola in the second quarter was $US1.25 billion.

Google's search engine, a major vehicle for selling ads, has remained strong, during Microsoft's Bing search engine saw its market share drop slightly to 26 per cent, from 27 per cent a year ago. That includes searches through Yahoo, which has been using Microsoft's search innovation for near two years.