Microsoft Software Sales Fall as Industry Awaits Windows 7

Microsoft (NASDAQ: MSFT) doesn’t believe the computer industry has hit bottom as sales for technology companies continue to decline during the current economic recession.

In the current earning season, many computer hardware and software companies have joined one of two camps—the ones who think we are close to bottom, and the ones who think that we aren’t. Microsoft, the biggest software company in the world, says we aren’t at bottom.

Microsoft executives painted that bleak picture for the rest of 2009 in the software giant’s earnings release and analyst conference call following it.

Microsoft announced revenue of $16.63 billion for the fiscal third quarter, ended March 31, a 6 percent decline from the same period a year ago. Microsoft says that operating income was $4.44 billion, a 3 percent increase; net income was $2.98 billion, a 32 percent decrease, and earnings per share was 33 cents, a 30 percent increase from the same period a year ago.

Microsoft said that revenue for its client, business division, and server and tools, was hurt by weakness in the global PC and server markets. But Microsoft said that revenue from enterprise customers remained stable.

“Trading conditions will remain tough throughout [Q4] and potentially through the calendar year,” Microsoft CFO Chris Liddell told analysts during the company’s conference call April 23, and later added that he’d seen no improvement yet.

Microsoft’s sales were hurt by lower PC sales as netbooks grabbed much of the market for new computers. Microsoft said that not including netbooks, Windows sales through OEM partners had declined by 19 percent.  Sales of “premium” versions of Windows were 20 percent lower in the third quarter.

Analysts called it a tough quarter for Microsoft but said the company is executing well on cost reduction plans.

“Revenues continued to be pressured by a soft IT spending environment,” said FBR Research in a brief report following the earnings release and analyst conference call. “The company is on track with its headcount reduction plan and was able to deliver significantly higher-than-expected cost reductions due to lower discretionary spending.

“We expect the IT spending environment to remain tough, but we believe [Microsoft] can offset some of the pressure with upcoming major product releases and further expense reductions.”

Microsoft Windows 7 is slated for release later this year and many users and organizations are said to be waiting for that release before completing their PC refresh cycles.