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Windows plan lowers Microsoft profit but shares up

October 24, 2009|Associated Press

SEATTLE — Consumers may be shopping for computers again, but Microsoft Corp. needs businesses to start doing the same.

Microsoft said Friday that its revenue continued to fall and its net income dropped 18% in its fiscal first quarter that ended Sept. 30, partly because of the hesitation of businesses, which are more profitable for Microsoft than consumers are.

Big cost cuts, however, helped the company deliver earnings well above analysts' expectations. Its stock rose $1.43, or 5.4%, to $28.02. Earlier in the day, it reached a 52-week high of $29.35.

Though the results looked good to Wall Street, they also showed how much Microsoft is still wrestling with a PC industry that remains much weaker than a year ago.

After skidding for six months, computer shipments rose in the July-September period. But shoppers tended to buy inexpensive laptops and even smaller, cheaper netbooks, which have older and less profitable versions of Windows installed. Many consumers also passed on buying Microsoft Office, the package that includes Word, Excel and Outlook, accounting for a 14% total decline in revenue in the quarter.

Businesses watched their spending even more closely. That dragged down Windows results because business-level versions of the operating system are more expensive. And companies that have cut workers are ordering fewer copies of Office and other Microsoft software. Revenue and profit in the group that makes Office sank even as businesses spent more on newer software such as Sharepoint.

Microsoft's earnings in the last quarter dropped to $3.6 billion, or 40 cents a share. That was much higher than analysts' average estimate of 32 cents in a Thomson Reuters survey. In the same period last year Microsoft earned $4.4 billion, or 48 cents a share.

Revenue sank to $12.9 billion, though if Microsoft had counted all its Windows sales, it would have posted a smaller drop in revenue, to $14.4 billion.

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