Microsoft's Quarterly Results Disappoint

Thursday, Microsoft announced its fiscal Q3 2009 results, and as expected, the company experienced its first year-over-year quarterly revenue decline in its history.

Rather than the 2% decline analysts were expecting, however, Microsoft showed a 6% drop in revenue, year-over-year.

Microsoft posted net income of $2.98 billion or $0.33 per share, down 32% from the $4.4 billion ($0.47 per share) year-over-year. Revenue dropped to $13.65 billion, from $14.45 billion a year ago, a 6% drop, as I indicated.

However, that earnings figure includes an investment and restructuring charge of $0.06 a share. As on average analysts had expected earnings per share of $0.39, earnings would have been in-line with expectations without that charge.

Still, with Windows Vista adoption poor and IT spending down because of the recession, it's not encouraging.

For employees, however, the good news was no word on additional layoffs. Of course, that doesn't mean they won't happen.

Highlights:

The Client Division, AKA the cash cow operating system division, reported a 16% revenue drop and a 19% profit drop, to $3.4 billion and $2.5 billion, respectively. What can you say: recession, right? Both IT and consumers are spending less, and let's not forget those netbooks that are cannibalizing sales of regular notebooks (MS doesn't get as much revenue from OS installs on those).

The Microsoft Business Division, AKA the other cash cow for the company (Office and related products), saw its revenue fall to $4.5 billion (a 5% drop) with a profit decline of 8%, to $2.9 billion.

At least those divisions made a profit. On to sadder tales.

Online Services showed 14% decline in revenue to $721 million for Q3 2009, led by a 16% decline in ad revenue, to $521 million. Can anyone say "Yahoo! deal?" Year-over-year, the division's operating loss more than doubled, to $575 million.

The Entertainment and Devices Division, which includes the Xbox 360 and Zune, reported a 2% decline in revenue, to $1.57 billion. Remember last year's surprising $106 million profit? Long gone. The division reported a loss of $31 million.

I saved the best for last, as Server and Tools, which makes Windows Server operating systems and other programs (such as SQL Server) used by companies, was up, yes up. Revenue was up 7% to $3.47 billion. Operating profits up a whopping 24%, to $1.34 billion.

Finally, Chris Liddell, chief financial officer at Microsoft said the following, which is probably a statement that can be pasted across the entire economy:

“While market conditions remained weak during the quarter, I was pleased with the organization’s ability to offset revenue pressures with the swift implementation of cost-savings initiatives. We expect the weakness to continue through at least the next quarter.”