Microsoft sales slow, will remain weak

Software sales slowed for tech giant Microsoft (MSFT) and are not expected to improve over the next three months. The company plans to cut costs and 5,000 jobs, having already cut 800, by July of next year.

News of the cost cuts may be sending its shares higher in after-hours trading. Microsoft shares are up 4 percent as of 6 p.m. New York time today.

Sales dropped 6 percent, falling from the previous year for the first time in the company's 23 years of being publicly traded. The company said it expects "the weakness to continue through at least the next quarter."The world's largest software company saw its fiscal third-quarter net income fall 32 percent and missed consensus analyst sales estimates and matched profit estimates.

Microsoft is experiencing "the most difficult economic environment our company has faced in our 30-year history," CFO Chris Liddell said on the company's earnings conference call today. "The slowdown is in virtually all of the company's divisions."

"While we all would like to think a recovery will be soon," Liddell said on the call, "we think it will remain slow and gradual." He said sales in "mature" economies "slowed noticeably," while "emerging markets had an even deeper decline than mature markets."

The company did not provide sales or profit estimates for the current quarter, which is its fiscal fourth quarter. Liddell did say, on the call, that "spending will remain difficult in the fourth quarter and PC shipments, except for netbooks, will remain weak."

Redmond, Washington-based Microsoft said its fiscal third quarter net income fell to $2.98 billion, or 33 cents a share, from $4.39 billion, or 47 cents, a year earlier. Excluding some costs, earnings matched consensus analyst estimates of 39 cents a share.

Revenue was $13.65 billion for the quarter ended March 31, down 6 percent from the quarter a year ago, and below the consensus analyst estimate of $14.11 billion.

"The revenue number was a little bit disappointing," Daniel Morgan of Synovus Securites told Bloomberg Television in an interview today. "This is somewhat reminiscent of what we saw earlier in the week with IBM in terms of their revenue number coming in a little bit short."

Sales in Microsoft's business division was "impacted by weakness in the global PC and server markets," Liddell said in a statement distributed by PR Newswire today.

PC sales have slowed and more consumers are buying lower-priced and smaller personal computers, cutting into Microsoft's Windows operating system software sales.

The company's sales are also being hurt, Morgan said, "as people downsize to cheaper ways of accessing (software) on the Internet."

Microsoft cut 800 jobs in the quarter, Liddell said on the call. It plans to eliminate 5,000 jobs by the middle of 2010 as part of a plan to cut operating expenses.

As software sales slow, investors may clamor for Microsoft to look again at buying Yahoo (YHOO). The move could help the software company beef up its search division and better compete with Google (GOOG), which is offering products for free on the Internet, such as Google Docs, to compete with Microsoft's Word software.

Yesterday, Microsoft CEO Steve Ballmer said his company isn't interested in buying Yahoo and will innovate in order to gain Internet search users.

On the conference call, the company said PC sales fell 7 to 9 percent in the quarter, with "continued weakness" in PC sales, while netbook PCs "continued to grow," representing 10 percent of PC sales.

Microsoft said it sold 1.7 million XBox 360 consoles in the first three months of 2009.

"It was a tough quarter," for Microsoft, Liddell said on the call. "We believe the long-term outlook for technology remains very strong."

Anthony Massucci is a senior writer and columnist for DailyFinance.
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