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Microsoft profits fall by a third

Microsoft sees decline in profits

Microsoft Windows logo

Microsoft has reported a 29% fall in Q4 profits in a year when its revenues have fallen for the first time since 1986, showing that even the software giant isn’t immune to the effects of the global economic downturn.

Microsoft’s revenues of $13.1bn were down 17%, falling well short of expectations and causing shares to slide 8% in after-hours trading in New York. It posted earnings of $3.05bn (£1.85bn) for the quarter and $14.6bn (£8.85bn) for the year to June 30.

Changes in PC market to blame

Industry analysts say the results aren’t entirely unexpected. ‘The number of PCs has gone down so the amount of money [from operating system sales] has gone down. Netbooks are flying off the shelves but the prices are low,’ says Jeremy Davies, industry analyst for Context.

Microsoft similarly blames its results on poor PC sales. 

‘Our business continued to be negatively impacted by weakness in the global PC and server markets,’ said Chris Liddell, chief financial officer at Microsoft. ‘In light of that environment, it was an excellent achievement to deliver over $750 million of operational savings compared to the prior year quarter.’

Davies believes that as well as falling PC sales the lacklustre response to Windows Vista is also to blame. ‘The wholesale migration to [Windows] Vista just didn’t happen,’ he told us.

Outlook for Microsoft?

Microsoft has two big new releases planned with Windows 7 due for release in October and Office 2010 already in Beta and scheduled for next year but Microsoft will have to work hard to convince both consumers and businesses to upgrade.

‘People have got upgrade fatigue; upgrading is no longer seen as the thing to do – if something works, why fix it?’ says Davies.

That said Windows 7 is less resource-hungry than Vista and should transfer well to the netbook platform. ‘I think if it [Microsoft] prices it right and stops trying to do too many versions people will upgrade. Microsoft can turn itself around very quickly if it needs to – it is too big and too prevalent to write it off,’ says Davies.

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