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Microsoft reports drop in profit, revenue

Microsoft Corp. says its profit dropped 29 percent in the most recent quarter because of weak computer sales.
/ Source: The Associated Press

Microsoft Corp. said Thursday its profit in the last quarter plunged 29 percent because of weak computer sales, ending a fiscal year in which the software maker’s revenue fell for the first time since the company went public in 1986.

Microsoft’s revenue in the quarter was well short of analysts’ expectations, and its shares plummeted $2, or 7.8 percent, to $23.56 in after-hours trading. Before the earnings report the stock had gained 3.1 percent to close at $25.56.

The results reflected how Microsoft’s fortunes are tied to the PC industry, which is expected to sell fewer computers this year than last — the first such decline since 2001. Many buyers are holding on to their existing machines for longer than normal, partly to save money in the recession and partly because Microsoft is releasing a new operating system Oct. 22. Among consumers, the hottest segment of the PC market is in low-cost “netbooks,” which run Windows XP — a lower-profit product for Microsoft.

“We are a stronger company than we were a year ago,” Microsoft Chief Financial Officer Chris Liddell said in a conference call. “However, the economy continues to be challenging and we need to lift our game to another level in fiscal 2010.”

Microsoft’s earnings in the last quarter, which ended June 30, sank to $3.05 billion, or 34 cents per share. In the same period last year it earned $4.3 billion, 46 cents per share.

Because some people buying Windows Vista computers now will get free upgrades to Windows 7 in October, Microsoft deferred $276 million of Windows revenue. That cut its profit by 2 cents per share.

The earnings were also hurt by legal charges, severance charges and the declining value of its investments. Excluding all those items, Microsoft would have beaten Wall Street’s expectations by 2 cents per share, according to a Thomson Reuters poll.

Microsoft’s quarterly sales dropped 17 percent to $13.1 billion. Even if the company had not deferred some Windows revenue, it still would have missed the Street view by a wide berth. Analysts were looking for $14.4 billion in sales.

The divisions responsible for Windows, Office, Xbox 360 and Web advertising all posted sales declines. Revenue also fell in Microsoft’s server software group, which had been holding up better than other groups in the last few quarters despite the economic crisis. Companies bought fewer server computers in the quarter, Microsoft said.

Microsoft’s online advertising business widened its operating loss. The Entertainment and Devices group, which makes Xbox 360, Zune and mobile phone software, also ended the quarter in the red.

For the full fiscal year, which ended June 30, the company’s profit fell 17 percent to $14.6 billion, or $1.62 per share, from $17.7 billion, or $1.87 per share, in the previous year. Sales sank 3 percent to $58.4 billion.