Microsoft sales fall

Consumers may be shopping for
computers again, but Microsoft
Corp. still needs businesses to
start doing the same.
Microsoft said Friday its
revenue kept falling and its net
income dropped 18 per cent in
the last quarter, partly because
of the hesitation of businesses,
which are more profitable for
Microsoft than consumers are.
Big cost cuts at Microsoft
made a difference, though,
helping the company deliver
earnings well above analysts'
expectations. Its stock surged
$1.29, nearly 5 per cent, to
$27.88 in afternoon trading.
Earlier in the day, the stock
reached a 52-week high of
$29.35.
But while the quarterly results
looked good to Wall Street, they
also showed how much Microsoft
is still wrestling with a PC
industry that remains much
weaker than a year ago. In the
past year the software maker
resorted to its first wide-scale
layoffs, and in July it said its
annual revenue had fallen for
the first time since the company
went public in 1986.
After skidding for six months,
computer shipments rose in the
July-September period. But
shoppers tended to buy
inexpensive laptops and even
smaller, cheaper netbooks, which
have older and less profitable
versions of Windows installed.
Many consumers also passed on
buying Microsoft's Office, the
package that includes Word,
Excel and Outlook, which
contributed to a 14 per cent
total decline in revenue in the
quarter.
Businesses watched their
spending even more closely. That
dragged down Windows results
because business-level versions
of the operating system are
more expensive. And companies
that have cut workers are
ordering fewer copies of Office
and other Microsoft software
commonly used at work. Revenue
and profit in the group that
makes Office sank even as
businesses spent more on newer
software such as Sharepoint.
Chris Liddell, Microsoft's chief
financial officer, said in a
conference call that businesses
could start replacing aging PCs
and servers starting in 2010,
'although it could be gradual and
occur over a couple of years.'
Other companies, especially
Intel Corp., have indicated they
expect things to improve faster,
in the current quarter.
Microsoft's earnings in the last
quarter dropped to $3.6 billion,
or 40 cents per share, though
that was much higher than the
analysts' estimate of 32 cents
per share in a Thomson Reuters
survey. In the same period last
year Microsoft earned $4.4
billion, or 48 cents per share.
Microsoft's bottom line was
hurt by a summer program in
which the company let people
buy a PC with the Windows Vista
operating system and later
install Windows 7 on the machine
for free. That meant Microsoft
counted only half of its Windows
sales in the period and will
report the rest as customers
upgrade to Windows 7, which
was released this week, through
January, when the offer expires.
If it had counted its deferred
Windows revenue, Microsoft's
earnings would have increased 8
per cent from last year.
Revenue sank to $12.9 billion,
though if Microsoft had counted
all the Windows sales, it would
have posted a smaller 4 per cent
drop in revenue, to $14.4 billion.
A big reason that Microsoft's
earnings would have increased, if
not for the Windows deferrals,
despite lower revenue is that
layoffs and other expense cuts
are paying off. Microsoft employs
4 per cent fewer people than a
year ago and has spent less on
marketing and outside
contractors, pushing operating
expenses down more than $600
million compared with a year ago.
Microsoft said expenses in the
current fiscal year, which ends in
June, could be as much as $400
million lower than previously
expected.
The company also lifted its
earnings per share by resuming
purchases of its own stock after
a six-month pause, spending
$1.45 billion in the quarter.