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Microsoft reports first drop in revenue since 1986

Microsoft reports first drop in revenue since 1986

The netbook market is growing, but Microsoft says that it's selling fewer premium versions of Windows because of the decline in the traditional PC market.

Godfather of software capitalism Microsoft has just released its quarterly earnings report for the first quarter of 2009, revealing the company’s first drop in revenue since it went public in 1986, shortly after the release of the Windows 1. The company announced revenue of $13.65 US for the quarter, showing a drop of six percent when compared with the same period last year. Meanwhile, the company’s net income dropped by 32 percent, and diluted earnings per share fell by 30 percent to $0.33 US per share.

In a webcast to coincide with the announcement, Microsoft’s chief financial officer Chris Liddell described the quarter’s market conditions as the “most difficult economic environment our company has faced in our 30 year history,” adding that “on the macro-economic front we saw a broad slowdown across virtually all product lines and geographies. Our transactional revenues, for example, and our emerging markets in particular were impacted by the economic reset that we’re all seeing, with demand down as much as 15 to 20 percent.”

Liddell also pointed out that Microsoft has made “the first significant layoffs the company has ever implemented” in order to reduce expenses. According to Liddell, the company had 800 fewer employees at the end of the quarter than it did at the start.

One primary reason for the drop in revenue appears to be a drop in the sales of normal PCs with top-end versions of Windows, while sales of small netbooks with Windows XP Home are increasing. The 10-Q form filed by Microsoft yesterday states that “revenue from Windows operating systems decreased reflecting PC market weakness, especially PCs sold to businesses, and a continued shift to lower priced netbook PCs.”

In the webcast, Microsoft’s general manager of investment relations, Bill Koefoed, expanded on this, saying that “we saw continued deterioration of the overall PC hardware market, which we estimate to have declined 7 to 9 percent. Traditional, or non-netbook PCs, were down 15 to 17 percent compared with the year ago quarter.” Koefoed added that “OEM revenue was down 19 percent, driven by the dynamics in the underlying PC market. Specifically, sales of premium SKUs were down over 20 percent, primarily down to the declines in the traditional PC market.”

However, he pointed out that “the small notebook PCs or netbook, category of the market continued its growth and represented about 10 percent of the total PC shipments for the quarter.” On the positive side, Koefoed says that “the particularly strong attach rate in netbooks illustrates that customers continue to prefer Windows.”

It's not all bad news for Microsoft, though. Liddell says that the company’s Xbox 360 console is still selling in “healthy unit volumes”, and Microsoft also says that Windows Server is still selling well. “While I can’t be happy with any quarter where our revenue and earnings per share decrease,” said Liddell, “I was actually pleased with our relative performance.”

Like AMD’s Dirk Meyer, Liddell was also wary of predicting that the market turmoil would soon be over. He described Microsoft as being “more cautious than most about the state of the world economy,” adding that “while we’d all like to think that a recovery will be soon and painless, we unfortunately believe that it will be slow and gradual.”

Are you surprised to see that Microsoft has announced a loss in revenue this quarter? Let us know your thoughts in the forums.

10 Comments

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DragunovHUN 24th April 2009, 19:19 Quote
Quote:
The company announced revenue of $13.65 US for the quarter

Wow.
Zut 24th April 2009, 20:28 Quote
LOL! I could GIVE them the 87¢ they lost!
mikeuk2004 25th April 2009, 04:03 Quote
Cry me a river. Poor poor microsoft. Mind you thinking about it, i bought more ms products end of last year than i have ever done in my entire life which include, 2 laptops with Vista and full Office Ultimate donwload from their website and a load of 360 games.

Maybe I should cut down. They still make billions and feel the need to layoff 800 people? That doesnt seem right considering their turnover.
The_Beast 25th April 2009, 04:45 Quote
You wouldn't see it in there stock price, they are up $1.99 or 10.52% for today but they are down almost $10 from 52 weeks ago
dicobalt 25th April 2009, 15:57 Quote
Netbooks are bad for the industry, when will the companies stop making them? They are only harming themselves by selling such low margin hardware. Frackin stupid. Cellphone manufacturers have higher profit margins. That's why so many cell phones cost more then a damn netbook lol. Low cost laptops are not yet feasable yet they keep pushing towards it killing themselves to have it because its a fad.
knuck 25th April 2009, 16:01 Quote
Quote:
Originally Posted by dicobalt
Netbooks are bad for the industry, when will the companies stop making them? They are only harming themselves by selling such low margin hardware. Frackin stupid. Cellphone manufacturers have higher profit margins. That's why so many cell phones cost more then a damn netbook lol. Low cost laptops are not yet feasable yet they keep pushing towards it killing themselves to have it because its a fad.

well once the process has started no one will just stop in hope the others will follow him
dicobalt 25th April 2009, 17:08 Quote
Quote:
Originally Posted by Ghys
well once the process has started no one will just stop in hope the others will follow him

Don't you know that's what price fixing is for! When they all get together into a cartel and agree to certain business practices I am sure this netbook thing wont last. We will see a transition to touch net-tablets that are way more expensive but essentially cost the same to make as a netbook+touchscreen.
knuck 25th April 2009, 17:37 Quote
Quote:
Originally Posted by dicobalt
Don't you know that's what price fixing is for! When they all get together into a cartel and agree to certain business practices I am sure this netbook thing wont last. We will see a transition to touch net-tablets that are way more expensive but essentially cost the same to make as a netbook+touchscreen.

I guess I didn't, no
n3mo 26th April 2009, 17:16 Quote
Quote:
Originally Posted by dicobalt
Netbooks are bad for the industry, when will the companies stop making them? They are only harming themselves by selling such low margin hardware. Frackin stupid. Cellphone manufacturers have higher profit margins. That's why so many cell phones cost more then a damn netbook lol. Low cost laptops are not yet feasable yet they keep pushing towards it killing themselves to have it because its a fad.


Well, mostly because cellphone manufacturers have HUGE profit margins. Motorola for example earns ~150% of manufacturing price on their higher models and that's just their profit - those phones sell for about 300% of manufacturing price, sometimes more. (those numbers came from Motorola sales guy I know for years - he's high on the corporate ladder so I'd say that they're quite correct)

You don't seem to understand the basics of the market: low profit + high sales = high profit, much higher than high profit + low sales. That's why nVidia earns far more on cheap GTX 250 than on GTX280 and they earn most of their money on cheap, integrated solutions. And that's why Intel, despite making the world's crappiest pseudo-GPUs, earns more on them than nVidia and AMD combined.

On the topic - I'm happy every time Microsoft is hurt in any way. Not because I'm some kind of negative-fanboy, but I strongly disagree with their market practices and my biggest wish is for them to have some real competition. Thankfully, it seems that their golden years are over, with Linux slowly making it to "general public" and more and more ignorants jumping on the Apple cattle-truck.
Matticus 27th April 2009, 01:55 Quote
Quote:
Originally Posted by Ghys
Quote:
Originally Posted by dicobalt
Netbooks are bad for the industry, when will the companies stop making them? They are only harming themselves by selling such low margin hardware. Frackin stupid. Cellphone manufacturers have higher profit margins. That's why so many cell phones cost more then a damn netbook lol. Low cost laptops are not yet feasable yet they keep pushing towards it killing themselves to have it because its a fad.

well once the process has started no one will just stop in hope the others will follow him

As n3mo has said low profit + high sales = high profit.

I guess being from the states you have never heard of primark, their profit margins must be razor thin but they move so much stock they are making a complete killing in the market.

At the minute people are not going to want to spend £500 on a new PC, so they might spend £200 on a nice stylish netbook. A sale with very little profit is better than no sale at all. In most business's even making very little profit (or breaking even) is not a problem, the key is cash flow.

Netbooks may be doing MS some damage,but they have probably kept asus, acer and samsung from a very different looking set of figures when they do their accounts at the end of each month.
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