Microsoft's Dismal Revenue: Redmond Can't Outrun the Recession

Microsoft's fourth quarter 2009 financials, announced yesterday, showed a record revenue decrease. Even software whiz kids can't control how many software licenses evaporate as employees across the United States lose jobs.

Fri, July 24, 2009


In the financial quarter that just ended, arguably one of its most important quarters ever, Microsoft had a chance to bounce back after an unprecedented year-over-year revenue drop last quarter.

But it was not meant to be. Microsoft yesterday reported historically poor earnings for the fourth quarter of fiscal 2009.

Overall, the company earned $3.05 billion, or 34 cents per share, on revenue of $13.1 billion, down 17 percent from the year before, which is a record decrease for the company. Year-over-year revenue fell in all five business segments, also a first.

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Total quarterly revenue of $13.1 billion was north of one billion dollars less than Wall Street's expected revenue of $14.3 billion.

Windows client revenue got the worst of the pain, down 29 percent from the year before, although some Windows revenue ($276 million) was deferred as part of Microsoft's Windows 7 Upgrade Option program announced June 25.

The main reasons for Microsoft's continued financial struggles: businesses are delaying PC upgrades due to the bad economy and consumers are opting for low-cost netbooks running Windows XP Home, which does not generate as much revenue for Microsoft as Windows Vista.

As the Economy Goes, so Goes Microsoft

What's become clear from Microsoft's latest earnings, according to industry analysts, is that the company's earnings are an indicator of the sorry state of the economy.

"Because Microsoft is so broad, it reflects the global economy," said Matt Rosoff, an analyst with independent research firm Directions on Microsoft, in a call with reporters.

It's logical: Microsoft makes most of its money selling to businesses and most businesses are tightening their belts to survive. Much of Microsoft's year-over-year revenue declines can be blamed on companies that were buying Microsoft software a year ago that have downsized or, in some cases, don't exist anymore.

"Microsoft sells a lot of its multi-year software contracts by the seat, so if a company is losing employees and an enterprise agreement is up, a company will say we don't have10,000 seats anymore. We want a smaller contract than we had last time."

But Rosoff posits that Microsoft will also ride the wave when the economy bounces back.

"When the economy is down, Microsoft falls farther than other companies. But when the recovery starts, you'll probably see Microsoft pick up faster than competitors," he says.

On the Bright Side....

Though Microsoft's earnings were dismal, analysts indicate that the software giant may have hit bottom this quarter and the next few quarters show promise. Why? Because Microsoft has a stockpile of revenue-generating products ready to strike.

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