Microsoft earnings down over last year

The software giant cites weaknesses in global PC and server markets

Microsoft missed analyst expectations for its third quarter, stumbling under the weight of the faltering economy.

For the period ending March 31, Microsoft reported revenue of US$13.65 billion, down 6 per cent compared to the same quarter last year and below the $14.09 billion that analysts predicted.

Diluted earnings per share were US$0.33, down 30 per cent over last year and below the $0.39 analysts expected.

Microsoft's operating income for the quarter was down just 3 per cent, hitting $4.44 billion, compared to the same period last year.

The company blamed weakness in the global PC and server markets for a poor showing in its Client, Microsoft Business Division and Server & Tools groups. However, it said that revenue from enterprise customers was stable.

That's contrary to what many analysts expected.

Due to recent reports from Gartner, IDC and Intel that PC sales haven't been as bad as expected, analysts forecast stable Windows sales, although some anticipated that slow enterprise sales and strong demand in netbooks would keep earnings down for Microsoft.

"While we now can take the worse-case scenario off the table for PC shipments, we believe the mix shift to the low end on strong netbook sales and weak enterprise shipments, will prove problematic to Client [average sales price] and margin," Israel Hernandez of Barclays Capital wrote in a research note a week ago.

Netbooks are making up a growing share of PC sales and even though Windows is improving against Linux on netbooks, Microsoft earns less for versions of Windows sold for use on the small computers.

While Microsoft plans to expand on its earnings report during a conference call later Thursday, it did not announce additional layoffs in its earnings press release. Earlier this week Sid Parakh, an analyst at McAdams Wright and Ragen, said that he expected further headcount reductions, either as part of the 5,000 people that Microsoft announced it would lay off earlier in the year or additionally.

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Nancy Gohring

IDG News Service
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