Microsoft suffers with AMD as PC weakness weighs on results

MICROSOFT Corp and Advanced Micro Devices Inc have reported quarterly results that fell short of analysts’ predictions, adding to evidence that personal-computer sales are being squeezed by anemic demand and competition from tablets.

Microsoft, the largest software maker, released profit and sales in the first fiscal quarter that missed estimates on declining sales of Windows, its flagship operating system. AMD, the No 2 maker of PC processors, forecast sales in the last three months of 2012 that may miss projections and said it will cut 15 % of staff.

Following Intel Corp’s results earlier in the week showing margins under pressure, yesterday’s reports underscored the impact of global economic weakness and a shift away from traditional computers toward handheld electronics. Some customers also put off PC purchases before the debut of the next version of Microsoft’s flagship Windows operating system.

“I don’t think people are expecting a big bounce in terms of PC sales for the fourth quarter,” said Colin Gillis, an analyst at BGC Partners LP in New York.

Microsoft’s net income declined 22% to US$4.47bil, or 53 cents a share, in the three months through Sept 30, it said in a statement. That missed the 56-cent average estimate of analysts polled by Bloomberg. Sales fell 7.9% to US$16bil, compared with the US$16.4bil average estimate.

During the quarter, global PC shipments slumped 8.3% from a year earlier to 87.5 million units, market-research firm Gartner Inc. said last week. The total PC market will contract by 1.2% to 348.7 million units this year, according to IHS ISuppli. That’s the first annual decline since 2001, the market researcher said last week.

Although holiday sales usually kick in this time of year, AMD is expecting revenue to fall 9%, plus or minus 4%, in the current quarter from the prior period, the company said yesterday in a statement. That indicates sales as low as US$1.1bil, compared with an average analyst estimate of US$1.31bil, according to data compiled by Bloomberg.

Microsoft is betting on Windows 8, which goes on sale next week, to lift demand for PCs and get consumers to purchase tablet machines running Windows rather than Apple Inc’s iOS or Google Inc’s Android. Alongside tablets from its computer-makerpartners, Microsoft will begin selling Surface, a tablet machine that marks the company’s first foray into computer hardware.

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 Windows 8 to vault it into the tablet market and restore consumer demand.

“The Microsoft numbers are a little worse than expected, but for Wall Street, it’s all about Windows 8,” said Mark Moerdler, an analyst at Sanford C. Bernstein & Co. “These are not substantially off enough to change the fact that people are largely going to shrug it off and look towards the launch of Windows 8 to see how that goes.” Multiyear contracts, which Microsoft reports as unearned revenue, blunted the impact in the latest quarter and boosted investor optimism for future quarters. Demand from corporate customers upgrading their server software and paying off multiyear contracts translated into unearned revenue. — Bloomberg