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Microsoft's Tough Third Quarter.

Posted by: Peter Burrows on April 23, 2009

A day after Apple seemed to shrug off the world economic woes with impressive quarterly earnings, Microsoft showed that it’s in no ways immune. While analysts expected revenues of $14.1 billion for the quarter ended March 30, Microsoft delivered just $13.65 billion—a 6% decline from the year before. Earnings per share were $.33, well below the $.39 Wall Street was looking for. Net income, which included $710 million in onetime charges, fell by nearly a third, to $3 billion.

Taken together, the quarterly numbers reflect the scary trends facing the company. Sales of its Windows PC software fell 16%—not just because of falling unit sales, but increased sales of cheaper versions that run on low-cost “netbooks.” (There’s not enough Lauren’s out there just yet, it seems.) But the server and tools business, which sells back-office gear that increasingly resides out on the Internet in data centers, rose from $3.2 billion to $3.4 billion. It’s clear that at a time when customers are watching their pennies, they’re investing less in PCs that formed the basis of the company’s lucrative monopolies—and spending more on geat that’s used in “the cloud”, where the company faces competition from the likes of IBM, Google and now Oracle, should its proposed acquisition of Sun Microsystems go through. It’s safe to say that how people spend money during these tough times is a good indicator of where people are likely to find value with their IT dollars.

One wild-card: Will Microsoft be able to adapt its other goldmine business, Microsoft Office and related business applicaitons, for this cloud-based market. So far so good. This unit, which has been rolling out on-line versions of products such as Microsoft Exchange, held up surprisingly well in the quarter, posting growth from $3.2 billion to $3.5 billion.

Maybe the most striking news is Microsoft’s crisp cost-cutting. Who knew this Midas of the computer industry knew how to scale back so well? In the quarter, administrative costs fell by more than $1 billion, from $2.3 billion to $913 million. And the company completed its first ever general layoff, of 5,000 people. The company did not cut into its R&D budget, however. Spending there rose from $2 billion to $2.2 billion.

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Reader Comments

Jacques Surveyer

April 23, 2009 06:44 PM

Note both Microsoft and Apple's Mac saw downturn in PC sales - see why Netbooks mess things up on Business Exchange articles and stories

Vista S***'s we all know it

April 23, 2009 09:02 PM

We all hate Vista. MSFT knows it's a flop (but doesn't reimburse us poor soles w/ the lemon).
No one wants a PC w/ Vista. W7 comes out in fall - maybe then. But us screwed will not forget...


April 23, 2009 09:08 PM

While Apple had their best quarter for March!!! So much for those silly MS ads.


April 23, 2009 09:42 PM

Microsoft spends its R&D budget on trying to think of new ways to trick consumers into believing that *this time* their operating system will be different.

They would probably do better if they cut their adminstrative costs to zero.

Former Ibmer

April 23, 2009 09:52 PM

Install Microsoft update, watch system start, lock, and reboot over and over and over...happening right now!

Maybe producing non bloated software that works, would help their bottom line???

My mac has crashed 2wice in 3 years, My microbox is buggy time consuming junk,


April 23, 2009 10:40 PM

How convenient! Blame slow sales on the recession instead of bad software that is overpriced.


April 23, 2009 10:47 PM

The bottom line is, Apple tries new things and innovate. Sometimes they bomb, but they truly do try. MS on the other hand is not creative and produces a low quality product.


April 23, 2009 10:47 PM

Jesus, can you guys not quit with the hyping up of this sort of thing? "Slammed" is a 6% drop??? No, a 40% drop in car sales is 'slammed'. This is merely a slowdown. And their costs went up because they had one time charges. Do some proper bloody reporting and quit sensationalizing everything.

Dilon Ho

April 23, 2009 10:54 PM

It's interesting to see that people are more likely to spend money on office gear. That will help me to alter my strategy. Thanks


April 23, 2009 11:34 PM

Apple's downturn in sales of computer was nominal, five points or so lower than the industry's. Apple's sells of the iPod touch compensate for it not having a netbook per se.


April 24, 2009 12:53 AM

It’s time for Balmer to go. Microsoft is sitting with billions in cash yet they make no acquisitions nor do they give the money to the shareholders. But he is big on increasing H1B positions and getting rid of American workers. Considering how mismanaged Microsoft is, the only reason it won’t go belly up is because it’s a monopoly.


April 24, 2009 01:03 AM

the 'impossible' has happened! perhaps MS will not be so smug from now on. I do notice that they are listening and responding. a reformed MS may be a good thing.

Sick of the Apple fanboys

April 25, 2009 08:06 PM

OK...let's just get the facts straight. Apple made its number due to the iPod and iPhone, and not the Mac. Mac sales declined.

2.22 million Macs sold during the quarter, a three percent unit decline
11.01 million iPods sold during the quarter, representing three percent unit growth
3.79 million iPhones sold, a 123 percent unit growth

It's also funny how some of you want to push the "monopoly" mantra but at the same time go down the laundy list of competitors and the competition faced by Microsoft. You can't have it both ways.

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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