SEATTLE (Bloomberg) — Microsoft Corp., the world’s largest software maker, on Thursday reported fiscal first-quarter profit and sales that fell short of analysts’ estimates as declining personal computer sales crimped demand for Windows, its core operating system.
Net income fell to
$4.47 billion, or 53 cents a share, in the three months through Sept. 30, from $5.74 billion, or 68 cents, a year earlier, the Redmond, Wash.-based company said in a statement. That fell short of the 56-cent average estimate of analysts polled by Bloomberg. Sales fell 7.9 percent to $16 billion, compared with the $16.4 billion average estimate of analysts.
Microsoft’s Windows unit revenue is suffering in a depressed PC market as some consumers switch to buying tablets. During the quarter, global PC shipments fell
8.3 percent from a year earlier to 87.5 million, market-research firm Gartner said last week. Microsoft is betting on the Windows 8 operating system, which goes on sale next week, to vault it into the tablet market and restore consumer demand.
“PC is just a portion of the business but when it’s your flagship people tend to pay attention to it,” said Colin Gillis, an analyst at BGC Partners in New York. “Clearly tablets are taking share.”
During the quarter, Microsoft deferred revenue from both the Windows and Office businesses to account for upgrade coupons that let customers upgrade to new versions of software.
Microsoft shares fell in extended trading to $29.15 after the report. The stock had closed at $29.5 in New York. It fell
2.7 percent in the three months through the end of September, compared with a 5.8 percent increase for the Standard and Poor’s 500 Index.
Unearned revenue, a measure of future sales, was $19.6 billion. Analysts on average expected $19.3 billion, according to data compiled by Bloomberg.
The PC market has been hit hard as consumers opt for smartphones and tablets instead of notebook computers. The total PC market will contract by 1.2 percent to 348.7 million units this year, according to IHS iSuppli. That’s the first annual decline since 2001, the market research said earlier this month.
Even corporate customers, whose purchasing aided Microsoft in the last several quarters, are now showing “caution” in placing orders, said Intel Corp. Chief Financial Officer Stacy Smith this week, when that company reported its quarterly results.
Intel forecast fourth-quarter profit margins that fell short of analysts’ estimates on Oct. 16. The same day, IBM Corp. said revenue dropped 5.4 percent to $24.7 billion, missing the $25.4 billion average analyst estimate, according to data compiled by Bloomberg. IBM cited customers pushing off signing software deals because of an economic slowdown in North America.
Poor PC demand and the shift to tablet machines has been ailing Microsoft’s Windows unit for almost two years. Windows revenue has fallen short of analysts’ estimates in five of the seven quarters through June 30.
Microsoft is betting on Windows 8 to lift demand for PCs and get consumers to purchase tablet machines running Windows rather than Apple’s iOS and Google’s Android. Alongside tablets from its computer-maker partners, Microsoft will begin selling Surface, a tablet machine that’s the company’s first foray into computer hardware.
However, Intel’s poor sales may indicate computer makers aren’t expecting to build that many machines in the quarter anding in December. Because PC makers have to purchase chips ahead of manufacturing and selling the machines, chip sales can be an early indicator of how computer makers are viewing upcoming demand.
“I don’t think people are expecting a big bounce in terms of PC sales for the fourth quarter,” Gillis said.