Shock reverse as Microsoft and Google fail to hit sales targets

Revenue for both companies grew but fell short of projected earnings

Sales staff demonstrate the Microsoft Surface during the opening of Microsoft's retail store in New York's Times Square October 25, 2012. REUTERS/Keith Bedford

Financial reports from the second quarter have shown that tech giants Google and Microsoft have both failed to hit projected targets.

Google reported $14.11bn in revenue and a net income of $3.23 billion – below the 20% increase in revenue predicted by Morgan Stanley. Analysts are blaming the lower-than-expected earnings in a shift in how consumers uses computers, moving from a one-screen-one-OS set-up to an experience based around multiple devices and mobile access.

In a speech given during the earnings call CEO Larry Page said: “These kinds of changes don’t happen that often, once a decade, maybe even less frequently.”

Disappointment from investors comes despite a 16 per cent increase in profits for the company compared with last year, as well as strong growth from advertising revenue – up 15 per cent with YouTube singled out as reportedly upping payment to partners by 60 per cent.

Microsoft itself announced revenue in the second quarter of $19.9bn (a growth of 11 per cent) with net income of $4.97bn.

The company also announced a $900m charge for inventory writedowns related to the Surface RT (recently slashed in price to encourage sales) essentially declaring that its rival to the iPad has lost nearly a billion dollars in value following poor sales.

Late last year Microsoft was reported to be building between three and five million Surface RT tablets, but have so far sold only 260,000 units (alongside 750,000 Surface Pros - a device offering a fuller experience of Windows 8).

As with Google, changes in computer use have hurt Microsoft, with the shrinking PC market (where the company first made its name) causing the most damage. Alongside this there were difficulties reported for consumer-facing divisions – Online Search (aka Bing) and the Entertainment & Devices department both lost money.

However, enterprise software provided a counterweight (revenue for the Microsoft Business Division grew 3 per cent for the year and Server & Tools revenue grew 9 per cent across the same time period) and it’s thought that the recent corporate reshuffle announced by CEO Steve Ballmer will help to re-balance this disconnect between consumer- and business-facing divisions.

“While we have work ahead of us, we are making the focused investments needed to deliver on long-term growth opportunities like cloud services,” said Ballmer.

“The strategic realignment we announced last week position us well for long-term success, as we focus our energy and resources on creating a family of devices and services for individuals and businesses.”