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10/23/2009
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Microsoft's Quarterly Profit Falls 18%

Software maker is hopeful Windows 7's debut will lift sales and income.

Windows 7's arrival couldn't have come sooner for Microsoft, as the company's operating system sales could use the boost that the newest version of Windows is likely to provide.

Sales of Windows and Windows Live products were off 39% in Microsoft's first fiscal quarter, ended Sept. 30th, the company reported Friday. Much of the drop was due to Microsoft's deferral of $1.5 billion in Windows revenue in the quarter due to a program under which consumers who purchased a Vista PC could upgrade to Windows 7 for a nominal charge upon the latter's availability.

Windows 7 was formally released Thursday.

But even with deferrals factored in, Windows sales for the quarter were still down from the same period a year ago. Sales were $2.6 billion without deferrals, compared to $4.3 billion last year. Sales would have been approximately $4.1 billion had revenue not been deferred.

Microsoft's overall first-quarter revenues were $12.9 billion, off 14% from the prior year's first quarter. Net income fell 18% to $3.57 billion, on earnings per share of 40 cents. Despite the declines, Microsoft's results exceeded expectations on Wall Street, where analysts predicted the company would report earnings of 32 cents.

Microsoft officials said they were satisfied with the results.

"We are very pleased with our performance this quarter and particularly by the strong consumer demand for Windows," said Microsoft CFO Chris Liddell, in a statement. "We also maintained our cost discipline, which allowed us to drive strong earnings performance despite continued tough overall economic conditions," said Liddell.

Microsoft said sales of server software and related tools held steady during the quarter, at $3.4 billion.

Sales of Xbox gaming systems and other entertainment devices were also flat year-over-year, at $1.9 billion. Sales of Microsoft Office and other productivity software slumped 11%, to $4.4 billion, with sales of Office to consumers down 34%.

Microsoft believes the launch of Windows 7 and other new products will boost its numbers going forward.

"The worldwide launches of Windows 7, Exchange Server 2010, and Windows Server 2008 R2 are exciting milestones for Microsoft, our partners, and customers," said chief operating officer Kevin Turner.

Microsoft shares were up 6.54%, to $28.33, in late morning trading Friday.

InformationWeek has published an in-depth report on new software models. Download the report here (registration required).

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