Microsoft’s sales tumble on PC weakness

Hopes that a rebound in the technology sector would help to fuel a broader recovery from the downturn suffered a setback on Thursday as Microsoft reported an unexpected slump in sales for its latest quarter.

The world’s biggest software company said revenues had declined 17 per cent amid falling global demand for new PCs and servers. The news follows a spate of more positive earnings news from Apple, Intel and IBM.

Microsoft also sounded a far more cautious note about the prospects for a recovery in the second half of 2009.

“It’s going to be difficult for the rest of the year,” said Chris Liddell, chief financial officer. “We’re really still not sure we’re out of the woods.”

While the software company had been expected to suffer more than other leading tech companies, given its heavier exposure to cyclically volatile PC and server sales, the extent of the decline was unexpected and its shares fell by nearly 8 per cent in after-market trading and were off by 10 per cent in early trading on Friday.

The setback in the fourth quarter of Microsoft’s fiscal year caps the worst year in its 23-year history as a public company, and the first in which it has seen a revenue decline.

Broader trends in the technology markets have also hurt the company. Netbooks, the small, low-cost laptops that have been the one bright spot this year, now account for 11 per cent of all PC sales, according to Microsoft.

However, it receives much less for the version of the Windows operating system shipped with these machines.

In spite of the latest signs of weakness, Microsoft’s shares are still up nearly 60 per cent since their low point in April on hopes that new product launches, including the Windows 7 operating system, will revive its fortunes next year.

Mr Liddell said that Microsoft was not anticipating any further big declines from current levels of spending by its customers, and sees “the potential for improvement” in 2010.

A 29 per cent plunge in revenues from Microsoft’s core Windows PC division, to $3.11bn, aggravated the decline in the latest quarter. Microsoft was also affected by an upgrade guarantee that allows PC buyers to switch to Windows 7 when it goes on sale in October.

Heavy cost-cutting made up for some of the shortfall, with Microsoft slicing 10 per cent from its operating expenses compared with a year before. But net income fell 29 per cent to $3.045bn, or 34 cents a share.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.