Microsoft Revenue Declines 17 Percent in Fiscal Q4

Microsoft's revenue declined 17 percent and net income declined 29 percent year over year in its fiscal 2009 fourth quarter due to continued weakness in global sales of PCs and servers, the company reported Thursday.

By Elizabeth Montalbano
Thu, July 23, 2009

IDG News Service — Microsoft's revenue declined 17 percent and net income declined 29 percent year over year in its fiscal 2009 fourth quarter due to continued weakness in global sales of PCs and servers, the company reported Thursday.

Revenue of US$13.1 billion and earnings per share of $0.34 slightly missed analysts' forecasts for the quarter that ended June 30. Quarterly earnings were reduced by $0.02 due to $276 million in deferred revenue related to Microsoft's Windows 7 Upgrade Option program announced June 25, Microsoft said. Thomson Reuters analysts were expecting revenue of $14.37 billion and earnings per share of $0.36.

Operating income for the quarter was $3.99 billion, a decline of 30 percent year over year, and net income was $3.05 billion, a decline of 29 percent year over year.

Analysts whad expected some revenue to be deferred to the December quarter, or later, because of the Windows 7 upgrade program, which allows people to purchase PCs now with the right to upgrade to Windows 7 when it becomes available. Microsoft can't report that revenue until the upgrade happens, which will be at least after the software's Oct. 22 availability date.

However, analysts still largely expected Microsoft to meet or even slightly beat consensus estimates for the quarter despite the deferred revenue.

They also though that Gartner's outlook for the PC market, released last week, would reflect positively on Microsoft's results. Gartner had expected a 10 percent decline in PC shipments for quarter, but ended up estimating a 5 percent decline instead. However, Gartner's PC shipment predictions still could bode well for Microsoft when Windows 7 is released in October.

Microsoft's results also were affected by $193 million in legal charges, $108 million of impairments to investments and $40 million of additional severance charges related to previously announced layoffs, the company said.

Revenue for the full fiscal year was $58.44 billion, a 3 percent decline from the prior year, while net income was $14.57 billion, a decline of 18 percent. Earnings per share for the year were $1.62, a decline of 13 percent from the previous year.

On a positive note, Microsoft said it took $750 million out of its operational costs for the quarter as it continued to enact cost-cutting measures to navigate the challenging economic environment. In January Microsoft announced its first-ever layoffs as part of these measures, and also cut back on travel expenses and contracts with short-term employees.

On a conference call Thursday, Microsoft Chief Financial Officer Chris Liddell acknowledged that Microsoft's fourth-quarter results were disappointing, but given how the company executed during the recession -- in particular by taking costs out of the business -- it is in a good position to meet the economic challenges it expects to face in at least the first two quarters of its fiscal 2010.

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