Microsoft profit falls short
Weak PC demand in first quarter hurts Windows
Microsoft Corp, the largest software maker, reported fiscal first-quarter profit and sales that missed analysts’ estimates as anemic personal computer sales crimped demand for Windows, its core operating system.
Net income declined to US$4.47bil, or 53 cents a share, in the three months through Sept 30, from US$5.74bil, or 68 cents, a year earlier, the Redmond, Washington-based company said in a statement. That missed the 56cent average estimate of analysts polled by Bloomberg. Sales fell 7.9% to US$16bil, compared with the US$16.4bil average estimate.
Microsoft’s Windows unit revenue is suffering in a depressed PC market as some consumers switch to buying tablets. During the quarter, global PC shipments slumped 8.3% from a year earlier to 87.5 million, market-research firm Gartner Inc said last week. Still, multi-year contracts, which Microsoft reports as unearned revenue, blunted the impact and boosted investor optimism for future quarters.
“I’m looking at that all-important Windows division – that’s really light,” said Kim Forrest, an analyst at Fort Pitt Capital Group Inc, which owns Microsoft shares. “If you’re paying attention to the decline in PCs, that shouldn’t have been a surprise. Things are holding up with regard to corporate sales.”
Demand from corporate customers upgrading their server software and paying off multi-year contracts translated into unearned revenue, a measure of future sales, of US$19.6bil. That’s better than analysts’ average estimate of US$19.3bil, according to data compiled by Bloomberg. During the quarter, Microsoft also deferred revenue from both the Windows and Office businesses to account for coupons that let customers upgrade to new versions of software.
Microsoft shares fell 1.6% to US$29.01 in extended trading after the report. The stock had closed at US$29.50 in New York. It fell 2.7% in the three months through the end of September, compared with a 5.8% increase for the Standard and Poor’s 500 Index.
Sales of Windows declined 33% to US$3.24bil, missing the average analyst estimate of US$3.64bil. Business Division sales, mostly Office software, fell 2.4%. Microsoft is betting on the Windows 8 operating system, which goes on sale next week, to vault it into the tablet market and restore consumer demand.
The PC market has been hit hard as consumers opt for smartphones and tablets instead of notebook computers. The total PC market will contract by 1.2% to 348.7 million units this year, according to IHS ISuppli. That was the first annual decline since 2001, the market research said last week.
Although corporate PC purchases, which had been shoring up results for the last several quarters, had slowed, they had performed better than the consumer market, Microsoft chief financial officer Peter Klein said in an interview.
Microsoft said a weaker economy, particularly in Europe, was causing companies to put off onetime purchases of its software.