Soft PC sales sink Microsoft profits

SEATTLE (AP) — Microsoft Corp. said Thursday its profit in the last quarter plunged 29 percent because of weak computer sales, ending a fiscal year in which the software-maker’s revenue fell for the first time since the company went public in 1986.

Microsoft’s revenue in the quarter was well short of analysts’ expectations, and its shares skated down $2, or 7.8 percent, to $23.56 in after-hours trading. Before the earnings report, the stock had gained 3.1 percent to close at $25.56.

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.

“It was not a great quarter at all,” said Canaccord Adams analyst Peter Misek. “Wow,’ was the response I had when I saw it hit the tape.”

Microsoft’s earnings in the last quarter, which ended June 30, sank to $3.05 billion, or 34 cents per share. In the same period last year, it earned $4.3 billion, 46 cents per share.

Because some people buying Windows Vista computers now will get free upgrades to Windows 7 in October, Microsoft deferred $276 million of Windows revenue. That cut its profit by 2 cents per share.

The earnings also were hurt by legal charges, severance charges and the declining value of its investments. Excluding all those items, Microsoft would have beaten Wall Street’s expectations by 2 cents per share, according to a Thomson Reuters poll.

In part, Microsoft was able to keep its profit on track because it cut operating expenses by nearly $1 billion from last year.

Microsoft’s quarterly sales dropped 17 percent to $13.1 billion. Even if the company had not deferred some Windows revenue, it still would have missed the Street view by a wide margin. Analysts were looking for $14.4 billion in sales.

For fiscal year 2009, which ended June 30, the company’s profit fell 17 percent to $14.6 billion, or $1.62 per share, from $17.7 billion, or $1.87 per share, in the previous year. Sales sank 3 percent to $58.4 billion.