Software slowdown hits Microsoft revenues

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A slowdown in the sale of software tied to its core PC business left Microsoft with weaker revenues in its latest quarter than either the company or Wall Street analysts had expected.

However, earnings for the period, the third in Microsoft's fiscal year, hit estimates and the company offered a more optimistic forecast than usual for the next year.

The software giant said that revenues for the latest period had risen by 5 per cent from a year before, to 9.62bn, slower than the 7 per cent that had been expected.

Scott Di Valerio, the company's corporate controller, said the figures reflected a “mixed enterprise software environment.” The comments echoed IBM's cautions of two weeks ago, when it announced an unexpected earnings shortfall that rocked the tech sector.

While IBM had seen a sudden slowdown in tech spending in March, Mr Valerio said Microsoft's sales had started the year weaker than expected, only to rise more strongly at the end of the quarter.

Microsoft's client and information worker divisions, which comprise its main Windows and Office PC software businesses, each registered growth of less than 3 per cent in the quarter. Sales in other divisions were also weaker than most analysts had expected, though server software grew by nearly 12 per cent and bouyant demand for the Xbox games console led to similar growth in the home and entertainment division.

Microsoft's MSN internet service also missed out on the boom in online advertising that has underpinned rivals Google and Yahoo! Revenues at MSN slipped 5 per cent from a year before, as advertising income inched up 4 per cent.

The software giant said that sales had been broadly in line with its expectations, though it had received less of a benefit from foreign currency fluctuations and demand for the Windows PC operating system from commercial and retail customers had declined more than expected.

For next year, Microsoft said that revenues would grow at 9-11 per cent to reach $43.3-44.1bn, an increase from the 8 per cent growth predicted for the current year. Wall Street had become accustomed in the past to the software giant issuing far more cautious predictions before going on to beat its targets.

For the latest quarter, Microsoft said earnings had climbed to $2.56bn, or 23 cents a share, from 12 cents a share the year before.

The earnings included 5 cents a share to settle anti-trust claims, along with stock-based compensation expenses of 4 cents a share. Excludings these costs - the basis on which analysts view the company - Microsoft's earnings were in line with estimates of 32 cents a share.

That was lower than the 34 cents a share of a year ago, reflecting a decline in interest income following the company's $32bn special dividend payment late last year.

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