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Microsoft Q1 sales take a hit on falling PC demand

Microsoft Q1 sales take a hit on falling PC demand


Microsoft (NASDAQ:MSFT) saw its shares slip in premarket trading Friday, after it reported a 22 per cent decline in first-quarter revenue, on a slowdown in PC demand ahead of its Windows 8 launch.

For the quarter that ended September 30, the world’s largest software company said its fiscal first quarter profit fell to $4.47 billion, or 53 cents per share, from $5.74 billion, or 68 cents per share, in the year-ago quarter.

Revenue came in at $16.01 billion, down 22 per cent from the $17.4 billion reported in the year-ago quarter.

The company said it deferred $1.36 billion in revenue and 13 cents per share in earnings for its Office software offer, and due to pre-sales and upgrades related to the release of Windows 8, which is slated to come out October 26.

Analysts polled by Thomson Reuters expected the company to bring in per share earnings of 56 cents on revenues of $16.42 billion.

“The PC market was challenged this quarter,” said CFO Peter Klein on an earnings call.

“In addition to a tough economic environment and competitive pressures, OEMs [original equipment manufacturers] drew down their Windows 7 inventory as they began the transition to Windows 8.  

“To date, we have certified over 1,000 unique Windows 8 systems including beautiful new tablets, convertibles, laptops, and all-in-ones.  And there will be more to come.”

Indeed, the company is gearing up for its October 26 release of Windows 8, the most extensive redesign of Microsoft's flagship operating system since 1995.

The new operating system, which will feature a new look and host new technology, will allow it to work on touch-controlled tablet computers, as well as Microsoft's traditional desktop and laptop PCs.

The company is also planning to unveil its own tablet computer called the Surface.

In the first quarter, the company's server and tools business sales grew eight per cent to $4.55 billion, driven by double-digit revenue growth in SQL Server and more than 20 per cent growth in System Center revenue. 

Last month, the company also launched its Windows Server 2012.

The Microsoft business division revenue fell two per cent to $5.50 billion, reflecting the slowdown in PC demand ahead of the Windows 8 launch, which resulted in a decline in operating income, it said.

Meanwhile, the Windows and Windows Live unit posted revenue of $3.24 billion, a 33 per cent decrease from the prior year period. 

Adjusting for the impact of the Windows upgrade offer and pre-sales of Windows 8 to OEMs prior to general availability, Microsoft said that Windows division revenue declined nine per cent for the first quarter.

The online services division revenue rose nine per cent in the first quarter, as online advertising grew primarily by an increase in revenue per search, the company said.

Finally, the company's entertainment and devices segment posted revenue of $1.95 billion, a decrease of one per cent from the prior year period. Microsoft said its Xbox continues to be the top-selling console in the U.S., where it now has 49 per cent market share. 

The Windows Phone 8 will launch this fall with an expanded array of products, prices, carriers, and markets. 

The company noted that Skype continued its “rapid growth” and now has over 280 million users.

Shares of Microsoft fell 1.95 per cent before the opening bell, at $28.92.


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January 30 2017

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