Microsoft Posts First-Ever Quarterly Revenue Decline

NEWS ANALYSIS: The global recession has brought Microsoft to a new first: A year-over-year decline in quarterly revenue. The Redmond, Wash.-based company also missed Wall Street consensus on earnings, because of separate charges that sapped 6 cents a share. Netbook sales have sapped the profits of Microsoft's Windows Client division.

Economic gloom once again has descended on Microsoft, which reported disappointing fiscal third quarter results. The sales figures are yet another sign that enterprise spending is down during the recession and that many businesses are holding back major operating system and business application deployments until Windows 7 releases.

Once again, netbook sales sapped Windows Client division profits. More broadly, slower PC and server sales took their toll, too. Windows client revenue declined a stunning 16 percent year over year.

For fiscal third quarter, ended March 31, Microsoft revenue was $13.65 billion, for 6.5 percent year-over-year decrease. Operating income was $4.44 billion and net income was $2.98 billion, or 33 cents a share. If not for two charges, $290 million and $420 million, Microsoft would have met earnings expectations. The charges sapped 6 cents a share from earnings.

The Wall Street consensus was $14.09 billion in revenue with earnings of 39 cents a share. In January, Microsoft refused to offer guidance, as would be typical, because of the weak economy. The previous quarter was Microsoft's toughest since fourth quarter 2000, during the last recession. While revenue rose 2 percent year over year in the fiscal second quarter, operating income declined 8 percent, net income by 11 percent and earnings per share by 6 percent year over year.

Microsoft last offered fiscal 2009 projections in October: Revenue between $64.9 billion and $66.4 billion, operating income between $24.4 billion and $25.5 billion, and earnings per share between $2 and $2.10. Current analyst consensus: $60.76 billion revenue, which would be a 0.6 percent increase over fiscal 2008. Analyst consensus for earnings is $1.74 per share. Microsoft only offered updated expense guidance for the fiscal year: $26.7 billion to $26.9 billion.

Analysts were generally bearish on Microsoft coming into the quarter, with consensus for a 17 percent growth decline. For the next quarter: 13 percent decline. For the fiscal year: 7 percent. None of this has been good for Microsoft stock, which joined other companies in the spiral downward from September. Share price dropped to a 52-week low of $14.87, but rebounded to near $20 last week. The 52-week high, achieved about a year ago, is $32.10.