Microsoft reports 29% profits fall

Published on Friday 24 July 2009 10:12

MICROSOFT has reported a 29% slump in fourth-quarter profits after a year in which its revenues fell for the first time since 1986.

The software giant's revenues of 13.1 billion dollars (7.94 billion) – down 17% – were well short of expectations, causing shares to slide 8% in after-hours trading in New York.

It posted earnings of 3.05 billion dollars (1.85bn) for the quarter and 14.6 US dollars (8.85 billion) for the year to June 30, a fall of 17% as customers switched to low-profit lightweight netbook models.

The results reflect how Microsoft's fortunes are tied to the PC industry, which is expected to sell fewer computers this year than last – the first such decline since 2001.

Many buyers are holding on to their existing machines for longer than usual to save money in the recession. Among consumers, the hottest segment of the PC market is in low-cost "netbooks," which run Windows XP – a lower-profit product for Microsoft.

Microsoft offset some of the revenues decline by cutting almost one billion US dollars (600 million) in operating expenses compared with last year.

Chief financial officer Chris Liddell said the company did well in the fourth quarter, given the economy.

“We are a stronger company than we were a year ago,” Mr Liddell said. “However, the economy continues to be challenging and we need to lift our game to another level in fiscal 2010.”

In the three months to June 30, divisions responsible for Windows, Office, and server software, posted sales declines, as did Xbox 360 and web advertising groups.

Microsoft said big businesses renewed software agreements at about the same rate as in the past, but revenues were not growing at historic rates because many companies have frozen hiring or cut workers.

Corporate customers also bought fewer server computers, it added.