Microsoft's profits fall as PC sales stumble

Reflecting global sluggishness in PC shipments, Microsoft on Thursday reported quarterly earnings that fell short of investors' profit expectations.

The software giant hopes, however, that Wall Street will direct its attention to the imminent arrival of Windows 8 on store shelves next Thursday. CEO Steve Ballmer has laid down an all-in bet that Windows 8's bold switch to a mouse-plus-touch user interface is destined to rejuvenate demand for Windows computing devices.

"The launch of Windows 8 is the beginning of a new era at Microsoft," Ballmer said in a prepared statement. "Investments we've made over a number of years are now coming together to create a future of exceptional devices and services, with tremendous opportunity for our customers, developers and partners."

The company reported that fiscal first-quarter net income fell to $4.47 billion, or 53 cents a share, from $5.74 billion or 68 cents a share, in the same period a year ago.

Revenue for the period ending Sept. 30 slipped to $16 billion, down from $17.37 billion a year ago.

That follows the quarter ending June 30, in which Microsoft reported a loss, mainly due to writing off the ill-fated $6 billion acquisition of aQuantive, an online advertising company.

Microsoft's share price closed at $29.50, down 9 cents, and slipped below $28.80 in after-hours trading.

The company's downbeat report fell in line with Intel reporting declining processing-chip sales earlier in the week, and with ugly quarterly reports expected from partners Hewlett-Packard and Dell on Nov. 20.

Research firm IDC says worldwide PC shipments in the third quarter fell by 8.6%. Industry experts blame the sluggish economy and the fast-rising popularity of Apple's iPad, Amazon's Kindle Fire and other tablet PCs that use a touch interface, instead of the traditional mouse and keyboard, for many personal computing tasks.

Ballmer has spent much of his time the past year hyping Windows 8. PC users must get used to a bold new mouse-and-touch interface. An extravagant launch event is scheduled for Thursday in New York City.

"Microsoft hopes that Windows 8 and other new releases are going to lead the company to greater success than they've had in recent years in markets where they're not players yet, like touch tablets and smartphones," says Gartner senior analyst David Smith.

The tiled interface is designed to help extend Microsoft Office, Xbox Live and other services to new Windows 8 laptops and desktop PCs - and especially to the new Surface tablet, a direct competitor to the iPad. A version of the interface already is used on the latest model Windows smartphones, which compete with the iPhone and Google's Android handsets.

Whether Windows 8 and the new interface can ignite a PC comeback - one that will buoy Intel, Dell and H-P, as well as Microsoft – remains to be seen.

"For a portion of the current tablet market and those who today don't own a tablet because it can not do enough, Windows 8 should be compelling," says Mark Moerdler, senior analyst at Bernstein Research.

USA Today