Weak PC Market Catches Up to Microsoft - New York Times

SEATTLE — The personal computer business has been in the worst downturn since the industry's inception, but Microsoft has shown a knack for finding ways to insulate itself. Until now. More Tech Coverage News from the technology industry, including start-ups, the Internet, enterprise and gadgets. On Twitter: @nytimesbits. On Thursday, the company missed Wall Street forecasts, blaming the declining PC market for the shortfall. Microsoft also acknowledged the disappointing sales of one of its most prominent products, its Surface RT tablet computer, by taking a $900 million charge to reflect unsold inventory of the device. "It finally caught up to them," said Colin Gillis, an analyst at BGC Partners. "We've been in a PC recession for five quarters." For the fiscal fourth quarter that ended June 30, Microsoft, which is based in Redmond, Wash., reported net income of $4.97 billion, or 59 cents a share, in contrast to a loss of $492 million, or 6 cents a share, in the period a year earlier. Last year, Microsoft took a $6 billion write-down on a soured acquisition, wiping out its overall profit. In the latest quarter, revenue rose 10 percent, to $19.9 billion, from $18.06 billion a year earlier. Those results fell well short of the average analyst estimates compiled by Thomson Reuters of 75 cents a share in earnings and $20.73 billion in revenue. Revenue from Microsoft's Windows business, which includes its Surface tablet computers, rose 6 percent, to $4.41 billion. But without including the favorable impact from an upgrade offer last year, Microsoft's Windows revenue fell 6 percent in the quarter. Last week, Gartner, the research firm, reported that global PC shipments declined 10.9 percent in the second quarter of the year, the fifth consecutive quarter of declining PC shipments, the longest ever. Mobile devices have sapped much of the gusto out of the PC market. Many people are buying tablet computers, especially Apple's iPad, instead of PCs to watch movies, surf the Web and write e-mails. "We know we have to do better, particularly on mobile devices," Amy Hood, Microsoft's chief financial officer, said in an interview. Ms. Hood said the company's Windows business is a "tale of two markets," one in which PC sales to businesses continue to grow modestly, while consumer demand for the machines is fizzling. She estimated that total industry PC shipments to the consumer market fell more than 20 percent during the quarter. Ms. Hood said that a companywide reorganization that Microsoft announced last week was part of an effort to better position the company for big changes in technology, including the shift to mobile devices. Until its most recent quarter, Microsoft showed a remarkable knack for finding ways to squeeze money out of its venerable business, despite the problems in the PC market. It did that through lucrative multiyear software contracts with corporate customers that tend to move far more slowly than consumers in adopting newer technologies. Microsoft's Windows and Office are still important tools for many of those businesses and will most likely remain so for years to come. "The consumer has voted," said Barbara Coffey, an analyst at S&P Capital IQ. "I don't know that enterprise has yet. We've seen such a big shift to tablets. Microsoft just doesn't play in tablets at the same level that they do in PCs." Investors had become more bullish on Microsoft's ability to navigate the disruption of the PC market, sending its shares up more than 32 percent this year. But after the release of its latest financial results, Microsoft's stock dropped nearly 6 percent in after-hours trading. via Technology - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNFTbIESULLpf2PQloN1SKO-xBX84Q&url=http://www.nytimes.com/2013/07/19/technology/weak-pc-market-catches-up-to-microsoft.html

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