Microsoft Corporation (MSFT) Has a Lot of Work to Do: Daniel Ernst


Microsoft Corporation (NASDAQ:MSFT) has definitely tried to do a tremendous job as visible in its fourth-quarter report, but there is a lot, still left to be done, according to Daniel Ernst of Hudson Square Research. The company’s revenue for the fourth quarter came in at $23.38 billion, as against the Wall Street estimate of $23 billion. The earnings per share for the reported period stood at $0.58 per share, excluding items, versus the $0.60 market estimate.

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“I think Microsoft Corporation (NASDAQ:MSFT) has done a fantastic job in productivity as now what they call their core focus. They did a fantastic job in transitioning to the commercial cloud, where the revenues are up 147%, but they have a lot work to do,” Ernst told CNBC. It is to be noted that the software giant witnessed a 7% drop in its profits, as a result of $7 billion Nokia Corporation (ADR) (NYSE:NOK) acquisition. That is a red flag and a point of concern for Ernst, who sees a lot of execution risk for Microsoft to handle post-takeover of Nokia. Furthermore, Ernst raised doubts if Microsoft Corporation (NASDAQ:MSFT) will choose to take the newly acquired handset business beyond five to ten years from now.

Alongside this, Ernst drew out the comparison of the revenues and operating costs in between Microsoft and Apple Inc. (NASDAQ:AAPL), in order to throw light on how the company needs to scale up its progress. Ernst said that Apple has earned revenues of $37 billion in its recent quarter, while its operating costs were at 4.5 billion for the period. Ernst said that nearly 35% of these costs were associated with R&D expenses of the company. On the contrary, Microsoft reported $22 billion in revenues, but operating costs as high as $9.5 billion. Thus, it clearly puts the case that Microsoft has half of the revenues against Apple, but double the costs, which should alarm the company, according to Ernst.

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