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Microsoft profit falls 32%, cuts costs

Microsoft profit falls 32%, cuts costs
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First Published: Fri, Apr 24 2009. 10 45 AM IST
Updated: Fri, Apr 24 2009. 10 45 AM IST
Seattle: Microsoft Corp reported 32% fall in quarterly profit on Thursday, hurt by a decline in technology spending in a global economic downturn.
Based in Redmond, Washington, the software company reported fiscal third-quarter profit of $2.98 billion, or 33 cents per share, compared with $4.39 billion, or 47 cents per share, in the year-ago quarter.
Excluding costs of the recent layoffs and charges for impaired investments, Microsoft reported profit of 39 cents per share.
Sales fell 6 % to $13.65 billion. Analysts were expecting $14.1 billion, on average.
Its shares rose as investors welcomed the firm’s efforts to cut costs and news that the release of its Windows 7 operating system is on track.
The world’s top software maker offered no profit forecast on Thursday, after withdrawing its outlook in January, but did say it expected the personal computer, server and hardware markets to remain weak for at least another quarter.
“While we would all like to think that our recovery will be soon and painless, we unfortunately believe that it will be slow and gradual,” chief financial officer Chris Liddell said on a conference call.
“I didn’t see any improvement at the end of the quarter that gives me encouragement that we are at a bottom and coming out of it,” Liddell added, contesting comments last week from chip-maker Intel Corp that the PC market was over the worst.
Microsoft’s report, following strong earnings from Apple Inc and Google Inc this month, broadly pleased analysts, some of whom braced for worse.
While the company reported a 6% drop in revenue for the March quarter, marking the first year-on-year decline in Microsoft’s history as a public company, it also managed to cut operating expenses by a bigger 9%.
“It’s good to see that they are controlling their costs because that’s within their sphere of control. They can’t really do a lot about demand,” said Kim Caughey at money manager Fort Pitt Capital Group.
“They have a nice product refresh cycle coming up, which should allow them to maintain their market share,” she added, referring to the new Windows 7 that will help Microsoft put the unpopular Vista operating system behind it.
Microsoft, which released the beta test version of the new Windows during the quarter, said it felt very good about the testing and the system was on track for a fiscal 2010 launch, which could mean as early as July this year.
“The best of all possible worlds would be that it’s ready for back-to-school, which is the July-August time frame,” said Caughey.
Cuts Expenses
Microsoft shares rose 3% in after-hours trading to $19.48, after closing at $18.92 on Nasdaq. The stock has risen over 30% from a more than 10-year low of $14.87 in early March. However, it is still essentially flat for the year after ending 2008 at $19.44.
Curtis Shauger, an analyst at Caris & Co, said Microsoft’s stock has been “pretty cheap” and investors were expecting profit margins to be hit.
“Some of the cost cuts they have done are having positive impact,” he said. “People were fearing far worse.”
Microsoft said it was targeting $26.7 billion to $26.9 billion in operating expenses for the fiscal year, which ends 30 June. That is below the $27.4 billion target it gave three months ago.
In January it said it would slash up to 5,000 jobs, or just over 5% of its 96,000 staff, over 18 months, in a bid to save $1.5 billion a year. It cut 1,400 staff right away.
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First Published: Fri, Apr 24 2009. 10 45 AM IST