Microsoft reports worrying sales slump

 

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By Reuters

Posted on 24 Jul 2009 at 08:10

Microsoft has posted the first-ever drop in annual sales of Windows as its quarterly revenue fell a steeper-than-expected 17%.

The world's largest software maker offered little hope for a turnaround in technology until next year, despite recent optimism from IBM and Intel.

"We still see conditions being challenging for the balance of this calendar year," says Chief Financial Officer Christopher Liddell.

"At least sequentially, we are seeing a little bit of growth. While things are not necessarily getting better, they may have bottomed out," Liddell adds.

Microsoft reported fiscal fourth quarter net profit of $3.045 billion, compared with $4.297 billion in the same quarter in 2008.

Profit excluding items was 38 cents per share for the quarter ended 30 June, beating analysts' average forecast of 36 cents per share.

Sales fell 17% to $13.1 billion, missing analysts' average estimate of $14.48 billion. Annual sales of the company's Windows operating system - its first and most important business - fell for the first time on record.

"It was really light on revenue," says Kim Caughey, senior analyst at Fort Pitt Capital Group. "It needs to explain where the money went."

Wall Street is blaming the lack of big tech projects. "Spending has been sparse by businesses and we're not in full recovery mode yet," says Laxmi Poruri, partner at Primary Global Research. "We're not in big-ticket mode, which is businesses purchasing a lot of equipment and a lot of software. They're doing small projects and that's going to hurt your margins."

Windows 7 recovery?

Microsoft is preparing to bring out the latest version of its operating system, Windows 7, on 22 October. Liddell says that release will not, on its own, spark a recovery in PC sales.

With sales under pressure, the Redmond-based company is focusing on controlling costs, announcing 5,000 job cuts in January.

Although Microsoft's share price fell 8% on the back of the results, the stock had risen 70% since early March, on hopes that Windows 7 will be a hit and a positive reaction to its new Bing search engine.