Microsoft feels more recession fallout as sales drop

Microsoft's quarterly revenue fell from the previous year for the first time in its 23-year history as a public company, while its profit dived 32%, it said today.

The declines illustrated the toll the recession has taken on the world's largest software maker, even though Microsoft remains one of the richest and most profitable companies.

In January, Microsoft said it needed to resort to its first mass layoffs, cutting 5,000 jobs, and on Thursday it announced it would do away with merit pay increases for employees in the next fiscal year.

Microsoft did not issue earnings guidance for the rest of the year, and it offered no hope for a rebound in the current quarter.

"I didn't see any improvement at the end of the quarter that gives me encouragement that we're at the bottom and coming out of it," said Chris Liddell, Microsoft's chief financial officer.

Even so, Microsoft shares gained 2.6% in extended trading after the earnings report, having closed earlier at $18.92 (€14.33), up 14c.

Microsoft said that in its fiscal third-quarter, which ended March 31, profit was $2.98bn (€2.26bn). In the same quarter of 2008, Microsoft earned $4.39bn (€3.32bn).

Microsoft avoided a steeper drop in profit by slashing costs in several areas, such as sales and marketing, which it cut by 9%.

Microsoft makes most of its profit selling the Windows operating system and business software such as Office, and those divisions have been hammered over the last six months as consumers and businesses sharply cut their technology spending.

The quarter which ended in December was the PC industry's worst in six years, according to research groups IDC and Gartner. In the following quarter, computer shipments sank about 7%.

Even the brightest spot in the PC market - tiny, recession-friendly laptops known as netbooks - had a downside for Microsoft because those inexpensive computers run a cheaper version of Windows XP, Microsoft's last-generation operating system.

The Windows division's profit fell 19% to $2.5bn (€1.9bn), and its sales sank 16% to $3.4bn (€2.57bn) in the last quarter.

The division that makes Office saw its profit drop 8% to $2.9bn (€2.2bn).

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