Microsoft Windows 7 Sales Fizzle, Kinect Strong

SEATTLE, Jan 27 (Reuters) – Sales of Microsoft Corp’s (NASDAQ:MSFT)
Windows software fell short of outsized expectations, rekindling
fears that the spread of mobile gadgets will erode its main
PC-focused business.

Microsoft surprised Wall Street with a better-than-expected
profit, helped by resurgent corporate spending after the
belt-tightening of past years. But its shares stayed flat as
investors expressed concern about the weakness of overall computer
sales amid a faltering U.S. recovery.

The world’s largest software maker, whose Windows operating
system runs on 90 percent of the world’s computers, is heavily
dependent on PC sales, which grew only 3 percent in the quarter.
Now it is starting to feel the heat from investors eyeing the
phenomenal take-up of Apple Inc’s (NASDAQ:AAPL) iPad.

"Outstanding numbers when you take a first look at it, but
when you delve into them, Windows missed expectations by $300
million," said Brendan Barnicle, analyst at Pacific Crest
Securities.

Sales of smartphones and tablets are expected to grow much
more quickly than PCs over the next few years, posing a threat to
Microsoft’s key market.

With the migration to mobile devices from desktop computers
expected to accelerate, Apple overtook Microsoft to become the
largest U.S. technology company by market value last May.

But some analysts argued that fears of tablets and other
hot-selling gadgets replacing PCs were overblown — at least for
now.

"We’ve gotten over 300 million Windows 7 licenses sold. I
mean, PCs are not disappearing. Put that into perspective with 7
million tablets sold last quarter from Apple," said BGC
Financial’s Colin Gillis.

"Clearly there are disruptions in the landscape, but some of
the negative viewpoints are overblown."

Microsoft stock is down about 3 percent over the past 12
months, compared with a 24 percent gain for the tech-heavy Nasdaq.
Apple shares are up 65 percent over the same period.

Early Release

The results surprised the market after being discovered online
by data search firm Selerity, which posted profit and revenue
numbers on Twitter at 2:50 p.m. EST (1950 GMT).

Trading in Microsoft’s shares spiked just under an hour later,
after blogs and news agencies started reporting the earnings from
the web page discovered by Selerity, sending the shares up as much
as 2 percent to $29.46. They ebbed back to $28.87 at the close, a
0.3 percent gain for the day. They drifted slightly lower in
after-hours trading.

"A preproduction draft of our earnings release was discovered
by one or more media sources who then published our results to the
web before market close," said a Microsoft spokesman, who
apologized for any confusion and said the company was reviewing
procedures to make sure it does not happen again.