Microsoft profits hit by crash after EC fine

Published on Friday 25 April 2008 10:38

SOFTWARE giant Microsoft has seen its profits slide by 11 per cent in the last three months, although the results were slightly better than market expectations.

The US company, which is soon to open its new Scottish head office at Waverley Gate, saw profits drop to 2.22 billion in the three months to March 31, compared to 2.5bn in the same period last year.

Sales remained stable, with one of the main reasons for the profits dip being the 719 million fine imposed by the European Commission for breaching competition rules.

Following the latest results, the firm also said it is ready to either go hostile in its 22bn bid for search engine Yahoo or call off the takeover entirely. Yahoo was bullish about the takeover saga earlier this week after it tripled profits in the first three months of the year. It wants a much higher offer.

But Microsoft's chief financial officer Chris Liddell said today: "Speed is of the essence for the deal to make sense.

"Unfortunately, the transaction has been anything but speedy and has been characterised by what would appear to be unrealistic expectations of value."

Microsoft sees Yahoo as a way to compete with arch-rival Google in the internet search and advertising arena, but executives have repeatedly said they have limits to what they are willing to pay.

"We have yet to see tangible evidence that our bid substantially undervalues the company," Mr Liddell said. "In fact, we see the opposite." Despite the dip in profits in quarter one, the company still expects stronger sales for the full year, although it has forecast that second quarter profits will come in at the lower end of expectations.

It said that strong sales of the Xbox 360 console had contributed to sales in its entertainment and devices sector increasing by 68 per cent year-on-year.

Andy Meidler, an analyst at Edward Jones, said that he is "cautious" about any improved Microsoft bid for Yahoo. "We already think they're paying a high price," he said.

The latest results caused a five per cent dip in Microsoft's share price before close in the US.