Microsoft Posts First-Ever Quarterly Revenue Decline

Microsoft reported a 15 percent year-over-year decline in new business bookings, largely attributed to global economic malaise. Microsoft reported an even steeper drop in PC unit growth than industry analysts–7 percent to 9 percent year over year.  

Microsoft reports results based on five business segments:

•           Client, which includes Windows

•           Server and Tools, which includes Windows Server

•           Business, which includes Office

•           Online Services, which includes MSN

•           Entertainment and Devices, which includes Xbox

Results by segment:

Client

Windows Client division revenue and income declined in its fiscal second quarter, a trend Microsoft couldn’t reverse in third quarter. Revenue fell 16 percent and income by 19 percent year over year. These are staggering numbers for Microsoft and far exceed unit shipment declines for the broader PC market. The division reported report revenue of $3.4 billion and operating income of $2.51 billion.

According to Gartner, worldwide PC shipments decline 6.5 percent year over year during first calendar quarter. In the United States, shipments declined 0.3 percent year over year. Like the previous two quarters, netbook sales were strong. But the increase in shipments command a high price on average selling prices and, more importantly, margins. Mikako Kitagawa, Gartner principal analyst, predicted that "U.S. mobile PC ASP likely will decline as much as 20 percent year-over-year in first quarter 2009.”

For Microsoft, netbook sales present other problems. The majority of the portables, which analysts call mini-notebooks, ship with Windows XP Home.  Retail sales reveal something of the impact: Windows XP had nearly disappeared from U.S. retail PCs in August. By December, Windows XP Home PCs were second to Vista Home Premium, with 13.7 percent market share, according to NPD. Microsoft loses massive margin on every netbook shipped with Windows XP Home. OEMs pay an estimated $50-$60 more per copy of Vista "premium" version. Those numbers are based on analyst estimates; Microsoft doesn't publicly disclose what OEMs pay for Windows.

Next: Surprising Strength in Server and Tools >>