Microsoft reports disastrous quarter

Microsoft saw a significant fall in both revenue and profit during its fourth quarter of the financial year.

Its revenues for the quarter, which ended on June 30 2009, fell by 17% year-on-year to $13.1 billion. Meanwhile, net income dropped 29% to $3.1 billion.

The quarter caps off a bad year for the software giant, in which total revenues fell by 3% to $58.5 billion. This is the first annual revenue decline at the company since 1986.

The decline in revenues was especially pronounced in the Client division, which sells the Windows desktop operating system. Thanks to falling PC sales, that division saw a 29% sales drop to $3.1 billion in the fourth quarter, and a 13% fall to $14.7 billion for the year.

“We estimate the overall PC hardware market declined 5% to 7% from last year,” said Bill Koefoed, Microsoft’s general manager for investor relations on a conference call for investment analysts. “We’ve seen substantial weakness in the business PC market as reduced IT budgets have delayed hardware purchases and refresh cycles.”

But every division of the business saw sales drop. Revenue for the Server and Tools unit, which sells server software and systems management tools, dropped 6% to $3.5 billion, and the Business division, which sells Microsoft Office and the Dynamics range of applications, suffered a 13% revenue drop.

The company’s online service business, that includes its newly relaunched web search engine and online email and instant messaging offerings, was once again its biggest loss maker. Indeed, the unit managed to lose $732 million on revenues of $731 million. In other words, every dollar that Microsoft invested in its online services unit cost the company two dollars.

Microsoft was equivocal about the future. “Looking forward, we do not expect trading conditions to improve much but neither in the short-term do we expect them to worsen,” said CFO Christopher Liddell.

But a recent report from technology market researcher IDC was more positive for the company. It predicted strong sales for the next version of Microsoft’s operating system, Windows 7, due for release in October 2009. Indeed, it argued that the release of Windows 7 would benefit the IT sector as a whole, creating 300,000 new jobs worldwide.

“The impact of Windows 7 will reach far beyond Microsoft, driving revenues and growth for many of the IT companies in Europe that sell hardware, write software, provide IT services, or serve as IT distribution channels,” IDC said. “This growth will do its bit to help the region’s economies climb out of the current economic crisis.”

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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