Microsoft reports first drop in revenue since 1986

Written by Ben Hardwidge

April 24, 2009 // 4:07 p.m.

Tags: #1986 #23 #bill #chris #earnings #koefoed-netbook #liddell #loss #microsoft #public #q-10 #revenue #sales #windows #years

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.

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