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Microsoft facing a grim six months

THERE isn't much Microsoft Corp can do to avoid what is shaping up to be a tough rest of 2009.

The same grim conditions that plagued the world's largest software maker in the first six months - weak computer sales, frozen corporate technology budgets - may not get worse, but they are not going to get better any time soon. However, the company expects business to brighten in the first half of the next calendar year.

That was one of the messages delivered by Microsoft Chief Financial Officer Chris Liddell in a conference call on Thursday after the company said revenue missed Wall Street's expectations by US$1 billion and earnings slumped 29 percent in the fiscal fourth quarter.

The results capped a fiscal year in which revenue fell for the first time since the company went public in 1986.

For the full year, Microsoft said its profit slid 17 percent to US$14.6 billion, or US$1.62 per share, as sales sank 3 percent to US$58.4 billion.

Investors weren't pleased, sending Microsoft shares down US$2, or 7.8 percent, to US$23.56 in after-hours trading. Before the earnings report the stock had gained 3.1 percent to close at US$25.56.

In April, Intel Corp said PC sales had "bottomed out" after their worst holiday season in six years.

Over the last few quarters, Liddell said, Microsoft "felt we couldn't necessarily see the bottom. I think that at least we are seeing signs now of the bottom."

But Liddell said the rest of the calendar year, at least, will be difficult for Microsoft. That's because the software maker's success is tied to the PC industry, which is expected to sell fewer computers this year than last - the first such decline since 2001.

Many buyers were holding on to their existing machines for longer than usual to save money. Among consumers, the hottest segment of the PC market is in low-cost "netbooks," which run Windows XP, a lower-profit product for Microsoft than the newer Windows Vista.

"For Microsoft, it's not a case where they're losing market share, or losing out to a competitor. It's purely about how their customers are behaving in the current economic climate," said McAdams Wright Ragen analyst Sid Parakh.

Microsoft is on track to release an updated operating system, Windows 7, on October 22 and a new version of its Office software in the first half of the 2010 calendar year, but neither of these events are expected to reverse Microsoft's recent fortunes.

Microsoft said its profit in the quarter that ended in June sank to US$3.05 billion, or 34 cents per share. In the same period last year it earned US$4.3 billion, or 46 cents per share.



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