Microsoft profit slips as PCs fizzle; Windows 8 awaited

SEATTLE Thu Oct 18, 2012 6:52pm EDT

A variety of logos hover above the Microsoft booth on the opening day of the International Consumer Electronics Show (CES) in Las Vegas January 10, 2012. REUTERS/Rick Wilking

A variety of logos hover above the Microsoft booth on the opening day of the International Consumer Electronics Show (CES) in Las Vegas January 10, 2012.

Credit: Reuters/Rick Wilking

SEATTLE (Reuters) - Microsoft Corp's quarterly profit fell a greater-than-expected 22 percent, as sales of computers running its Windows operating system dipped and some revenue was deferred ahead of upcoming releases of its core Windows and Office products.

The sharp decline surprised investors, who had underestimated the effect of weak personal computer sales, sending Microsoft's shares down 1.3 percent in after-hours trading.

"To us it seems like the macro conditions certainly deteriorated and no tech company will be immune to it," said Trip Chowdhry, analyst at Global Equities Research.

Earlier on Thursday Google Inc reported sharply lower profit amid slowing advertising, following downbeat reports from Intel Corp and International Business Machines Corp this week.

Sales of PCs are expected to fall this year for the first time since 2001, according to research firm IHS, due to the weak economy and inability of the latest crop of lightweight laptops to compete with Apple Inc's iPad.

Microsoft is betting the release of touch-friendly Windows 8 will rev up sales of PCs, laptops and Windows-compatible tablets as soon as it launches next week, and break Microsoft's heavy reliance on PC sales for profit.

"I don't control the macro-environment, but there's a huge opportunity in the explosion of devices," Microsoft Chief Financial Officer Peter Klein said in an interview. "There's demand for compelling devices and a connected set of cloud experiences. That's what Windows 8 is all about."

STEEP DIP

Microsoft, the world's largest software company, said fiscal first quarter profit fell to $4.47 billion, or 53 cents per share, from $5.74 billion, or 68 cents per share, in the year-ago quarter.

Wall Street had expected earnings of 56 cents per share, according to Thomson Reuters I/B/E/S.

Sales fell 8 percent to $16.01 billion, largely caused by the dip in demand for personal computers running Windows, as consumers held off new purchases in the tight economy or opted to buy tablet devices instead.

The revenue decline was exaggerated by Microsoft's deferral of some $1.36 billion in revenue, chiefly from its Windows unit, which it will regain next quarter after Windows 8 is launched.

Analysts, anticipating the dip in PC sales and accounting for the deferred revenue, had called for sales of $16.4 billion.

On the positive side for Microsoft, its fast-growing server and tools business - whose datacenter 'cloud' services are in high demand - posted a 12 percent jump in operating profit to $1.75 billion. Its perennially money-losing online services unit - containing the Bing search engine and MSN portal - narrowed its quarterly operating loss by 29 percent to $364 million, as it increased its share of the search advertising market and cut costs.

"Investors were not expecting a home run. All expectations are on the launch of Windows 8 and the entrance into the tablet market," said Daniel Ives, analyst at FBR Capital Markets. "In light of the environment, the macro and PC situation, these are respectable numbers."

(Additional Reporting by Nicola Leske, Liana Baker; Editing by Richard Chang)

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Comments (1)
Fill wrote:
Computers last a long time these days, so there is less need to upgrade them every year or so. Win8 is also offered as a $40 upgrade, which I believe only works if you already have XP/Vista/Win7 installed first, so I’m not sure there’s a huge audience waiting to buy new computers just to get Win8. And, I think Metro (or whatever they call it now) and the lack of a start menu has scared off a lot of people. A lot of people were bit by Vista and are going to sit back and see how the reviews look before diving in. Lastly, a lot of folks (especially businesses) don’t see anything wrong with Win7 (in fact, the same could be said for XP!)

Oct 18, 2012 5:21pm EDT  --  Report as abuse
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