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Microsoft doubles quarterly revenue drop

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Microsoft has recorded its second year-on-year decline in quarterly revenue, more than double the size of the first crash it reported this spring.

Revenue for the whole company fell by 17 per cent to $13bn for the three months ending June 30, compared to a six per cent drop of $13.65bn reported in April. Income for the fourth-quarter was down 29 per cent to $3bn, and earnings per share were down 12 cents to $0.34.

The overall revenue loss ensured Microsoft missed Wall Street's anticipated target by around a billion dollars. Investors had hoped for $14.37bn.

Of Microsoft's five business units, it was the core Windows client that was the biggest drag on performance. Revenue fell 28 per cent to $3.1bn, with income down 33.3 per cent to $2.1bn.

Revenue was also down in the server and tools, Office, online, and entertainment and devices divisions by between 5.6 and 25 per cent. Online - home to Bing.com - was down 12.6 per cent.

Chief financial officer Chris Liddell said OEM unit sales were down 10 per cent compared to this time last year, when OEMs had overstocked and sales reached "historic levels." Also, he said, retail sales are down 16 per cent. He blamed this on people holding off on Windows Vista in anticipation of Windows 7.

That left Liddell looking for rabbits' feet to rub. He predicted Windows client revenue could outpace PC sales by the end of this year - the Microsoft's fiscal second quarter and the calendar fourth quarter that covers the busy Thanksgiving and Christmas consumer-shopping season.

Liddell bet on a perfect storm of the power of Window 7, due to ship on October 23, and an improving economy that will see consumers open their wallets and businesses upgrade their PCs after postponing purchases due to reduced IT budgets.

That's quite a set of circumstances to bet on when the PC industry isn't growing. Even Liddell says that while things won't get worse for the rest of this year, they won't necessarily improve.

Microsoft has laid the groundwork to boast a blow-away second fiscal quarter, with the Windows 7 Technology Guarantee Program and other discounts. Revenue from these programs can't be realized until Windows 7 actually ships, and while Windows 7 will come in at the tail end of the first fiscal quarter, it should be the second that gets the biggest boost.

Liddell predicted between $1.1bn and $1.3bn in pre-sales of Windows 7 from the Windows 7 Technology Guarantee Program in the first quarter. That compares to $276 million from the program recorded in the quarter just closed, which must also be rolled over.

Liddell said that Microsoft was unable to claim 22 per cent of the revenue it made on Windows this quarter because of the Windows 7 Technology Guarantee Program deferrals.

For the full fiscal year 2009, Microsoft's revenue was slightly down 3.2 per cent to $58.4bn with income down 17 per cent to $14.5bn. Earnings per share took a $0.25 hit, coming in at $1.62. Revenue was down in all business units except server and tools (home to Visual Studio, SQL Server, and Exchange), and it grew 7.8 per cent over the previous year. The Windows client division was down 12 per cent, and the business division dropped 0.18 per cent. ®

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