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July 24, 2009

Microsoft profits slump again

More woe for the Redmond firm

By Steve Evans

Software giant Microsoft’s latest quarterly financial results have revealed another large drop in revenue and profits, with the firm once again blaming the economy for poor PC sales.

For the quarter ended June 30, 2009, Microsoft recorded revenue of $13.1bn (£7.94bn), down 17% on the year-ago quarter. Profits dropped from $4.3bn (£2.6bn) a year ago to $3.05bn (£1.85bn), a fall of 29%.

Shares in the company dropped 7% in after-hours trading as the figures were worse than analysts had predicted.

Chris Liddell, chief financial officer at Microsoft said that weakness in the global PC and server market had negatively impacted the figures.

The figures included the deferral of $276m of revenue related to the Windows 7 Upgrade Option program that was announced on June 25, 2009, the firm said.

Microsoft is hoping for big things from its latest operating system, which is due to be released this autumn. Analyst house IDC estimated that Microsoft will ship just under 200 million units of Windows 7 by the end of next year, with 40 million of those sales coming in 2009. Microsoft will be hoping that businesses that missed Vista, Windows 7’s disappointing predecessor, will be tempted to upgrade to the new version.

A recent survey by ScriptLogic discovered that six in ten businesses are planning on skipping Windows 7 – but the survey also revealed that 5.4% planned on having it in place by the end of 2009, with another 34% aiming to have Windows 7 installed by the end of 2010, which points to Windows 7 being a success for Microsoft.

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The company was also boosted by its cost-cutting exercise, which shaved $750m off Microsoft’s operation costs. “In light of that environment, it was an excellent achievement to deliver over $750 million of operational savings compared to the prior year quarter,” said Liddell.

However, the financial figures also include $193m of legal charges, $108m of impairments to investments and $40m of additional severance charges related to the plan announced in January to cut about 5,000 jobs in an attempt to reduce costs.

Along with the Windows 7 developments, the quarter also included the launch of Microsoft Bing, the company’s revamped search offering. Microsoft currently trails a distant third in the search rankings, well behind market leader Google and second placed Yahoo.

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