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Fri, 24 Apr 2009 Microsoft suffers first sales decline in history

Falling PC sales, netbook sales, blamed for revenue shortfall

Eric Lai Computerworld

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Microsoft's Windows profits fell for the third quarter in the row, the company reported on Thursday, while profits from its Office productivity suite fell for the second straight quarter. Overall sales for the company's Q3 were $13.6 billion, down 6 per cent from the same period last year - the first sales decline in Microsoft's history.

No relief is expected next quarter, said Microsoft's CFO during a conference call after the fiscal Q3 earnings were released. But one analyst said Microsoft's sales may start picking up again by year's end, boosted by corporate renewals.

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Operating income for the Windows client division was $2.5 billion in the third quarter ending March 31, down 19 per cent from the year before.

Operating income in the Microsoft Business Division, of which the majority of the revenue comes from sales of Office, fell 8 per cent year over year to $2.9 billion.

In its earning release and an accompanying PowerPoint presentation, Microsoft blamed falling sales of PCs to businesses for the Windows shortfall, combined with lower profits per PC on the consumer side with fast-rising netbooks, which use the less profitable Windows XP.

On Office, Microsoft cited slumping computer sales, including falling sales of Apple Macs.

"I didn't see any trends at the end of the quarter that would encourage me to think that we have hit the bottom," Microsoft CFO Chris Liddell said. "We expect broadly the same trends in [fiscal] Q4 as we had with this Q3."

However, Matt Rosoff, an analyst with the independent firm Directions on Microsoft, predicts Windows and Office sales will pick up in the new fiscal year. He said that enterprises, motivated by the upcoming Windows 7 and Office 2010, will start re-signing their volume-licence agreements.

Windows 7's expected release later this year will also likely result in a "pretty good bump up in retail upgrade sales" among consumers who are now holding onto Windows XP or using Vista, but who are eager to upgrade, Rosoff said.

"Windows Vista was received poorly enough and 7 is getting good enough reviews that I think there will be a lot of consumers doing in-place upgrades [to Windows 7]," he said.

Despite consistently poor reviews of Vista from its launch, Microsoft's revenues and profits for Windows did not start falling until late last year, as the recession and the rise of low-cost netbooks took their toll. During its Q2 earnings call, when it announced 5,000 layoffs, the company's operating income for Windows and its Microsoft Business Division fell 13 per cent and 2 per cent, respectively.

Income for its Windows client OS also fell 4 per cent year-over-year in its fiscal Q1, which ended on Sept. 30, 2008.

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Comments received


Tom H said on Fri, 24 Apr 2009

It's called a recession, everyone's selling less.

Michael said on Fri, 24 Apr 2009

"7 is getting good enough reviews," is that's all the better they can do-"good enough"? I'm very happy that Apple chooses to make great software.

Bebo said on Fri, 24 Apr 2009

"I'm very happy that Apple chooses to make great software" It just does not sell much.

James Y said on Fri, 24 Apr 2009

I read Apple have had to cut retail staff due to slow sales. Starting to affect everyone.

Gabriel said on Fri, 24 Apr 2009

Tom, Bebo, James: That's right, just keep telling yourselves that the Microsoft Emperor is wearing the finest clothes in the land. Doesn't change the fact that he's bare nekkid and starting to turn blue from the cold.

@Gabrriel said on Fri, 24 Apr 2009

I think the Apple sales staff being laid off is just a start, normally a sign of deeper problems.

While in your dream world keep in mind that Mac's still have less than 10% of the OS market and sales are dropping.

@PC Trolls said on Sat, 25 Apr 2009

If everyone is selling less, how come Apple's results show that they aren't?

Some of you PC Trolls are so blinkered you must have broken noses from all the walls you've walked right into.

Mark Mywords said on Sun, 26 Apr 2009

Apple: "We are extremely pleased to report the best non-holiday quarter revenue and earnings in our history".

Microsoft: announced the first drop in sales in its history and the third quarter in a row of lower profits.

Making any profit at all in the worst recession since the 1940s is a sign that both companies are very healthy.

Having said that one of these companies has been growing at an extraordinary rate for the last 12 years, while the other has been treading water.

Anyone who invested $1 in Apple in 1997, just before Steve Jobs returned to the company, would now have $37.7

If you had made the same $1 investment in Microsoft in 1997 you would now own $1.25

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