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Microsoft Misses March-Quarter Views On Sales, Earnings

Microsoft ( MSFT ) late Thursday reported fiscal third-quarter sales and earnings that missed Wall Street’s targets, prompting investors to sell off shares of the software giant. The Redmond, Wash.-based company earned 62 cents excluding items, flat with the year-earlier quarter, on sales of $22.08 billion, up 2%, in the quarter ended March 31. Analysts polled by Thomson Reuters expected 64 cents EPS and $22.09 billion in sales. Microsoft stock was down more than 3% in after-hours trading, following the earnings release. During the regular session, Microsoft rose a fraction to 55.78 on the stock market today . Microsoft stock had been trading just below its all-time high of 56.85, reached on Dec. 29. Microsoft was scheduled to give current-quarter guidance on a conference call with analysts later Thursday. For the June quarter, Wall Street was modeling for Microsoft to earn 66 cents a share, up 10%, on sales of $23.04 billion, up 4%. Investors have been upbeat over Microsoft’s transition from desktop software to Internet cloud computing services, such as Azure, Office 365 and Dynamics CRM Online. Microsoft’s commercial cloud business in Q3 reached an annualized revenue run rate of over $10 billion. “Organizations using digital technology to transform and drive new growth increasingly choose Microsoft as a partner,” Microsoft CEO Satya Nadella said in a statement. “As these organizations turn to us, we’re seeing momentum across Microsoft’s cloud services and with Windows 10.” Under generally accepted accounting principles (GAAP), Microsoft reported earnings per share of 47 cents, down 23% year over year, on sales of $21.73 billion, down 6%. Microsoft’s non-GAAP results included a $1.5 billion revenue deferral primarily related to Windows 10. Excluding the impact of foreign exchange rates, Microsoft’s sales would have been up 5% in Q3 on a non-GAAP basis. Of Microsoft’s three business segments, Intelligent Cloud was the top performer. Sales in the unit grew 3% (up 8% in constant currency) to $6.1 billion. The Intelligent Cloud segment includes server products and services such as Windows Server, SQL Server, System Center and Azure. Microsoft’s Productivity and Business Processes unit saw sales rise 1% (up 6% in constant currency) to $6.5 billion. Office 365 consumer and commercial offerings and Dynamics CRM Online were big contributors in the quarter. Microsoft’s More Personal Computing unit increased sales by 1% (up 3% in constant currency) to $9.5 billion. The unit includes Windows software, PC and phone hardware, Bing search and Xbox gaming.

Virtual Reality Goes From Virtually Nothing To $2 Billion Market

Virtual reality headsets will generate about $2.3 billion in sales worldwide this year, up from next to nothing last year, market research firm IDC predicted Thursday. Shipments of VR headsets will skyrocket to 9.6 million units this year, IDC said. Driving the market are three high-definition headsets: Facebook ’s ( FB ) Oculus Rift, HTC’s Vive and Sony ’s ( SNE ) PlayStation VR. The market also will get a boost from lower-cost devices, such as Samsung Gear VR, which use a smartphone as the display. IDC predicts that annual shipments of VR headsets will reach 64.8 million units in 2020, with a five-year compound annual growth of 184%. “Video games will clearly be the lead rationale for people to pick up an Oculus Rift, HTC Vive or PlayStation VR this year,” IDC analyst Lewis Ward said in a statement . Exciting new VR games on the way will lead to a wave of interest in buying VR hardware, especially this holiday shopping season, he said. This month, research firm Strategy Analytics predicted that VR headsets would generate sales this year of $895 million worldwide. It predicted sales of 12.8 million VR headsets this year, skewed toward low-cost, smartphone-based devices. The Oculus Rift, which began shipping on March 28, costs $599. HTC Vive went on sale April 5 and costs $799. PlayStation VR will cost $399, and it goes on sale in October. Oculus Rift and HTC Vive require the use of a high-end PC, and PlayStation VR needs to be coupled with the PlayStation 4 game console. The tangential market of augmented reality (AR) headsets, such as Microsoft ’s ( MSFT ) HoloLens, will take longer to develop, IDC said. IDC is forecasting sales of 400,000 AR headsets this year, rising to 45.6 million in 2020. “While development kits from players such as Microsoft, Meta and others point to a strong future in AR hardware, these devices are dramatically harder to produce than VR products,” IDC analyst Tom Mainelli said in a report. “Doing this right is more important than doing it fast, and we urge the industry to continue its slow and steady approach to hardware development here, as AR is going to have a profound impact on the way we interact with technology and the way we do our jobs for many years to come.” In the meantime, expect to see more companies experimenting with AR software on smartphones and tablets, he said. VR headsets cover the wearer’s entire field of vision and provide an immersive video and audio experience. AR headsets are computerized glasses that overlay information onto a wearer’s field of view. RELATED: Augmented Reality Could Be The Next Big Leap For Personal Computing .