Update: Microsoft revenue declines 17% in fiscal Q4

IDG News Service - Microsoft revenue declined 17% and net income declined 29% year over year in the company's fiscal 2009 fourth quarter due to continued weakness in global sales of PCs and hardware servers, the company reported Thursday.

Revenue of $13.1 billion and earnings per share (EPS) of 34 cents slightly missed analysts' forecasts for the quarter that ended June 30. Quarterly earnings were affected by a 2-cent reduction due to $276 million in deferred revenue related to Microsoft's Windows 7 Upgrade Option program announced June 25, Microsoft said. Thomson Reuters analysts were expecting revenue of $14.37 billion and earnings per share of 36 cents for the quarter.

Operating income for the quarter was $3.99 billion, a decline of 30% year over year, and net income was $3.05 billion, a decline of 29% year over year.

Analysts were expecting revenue to be deferred to the December quarter, or later, because of the Windows 7 upgrade program, which allows people to purchase PCs now with the right to upgrade to Windows 7 when it becomes available. Microsoft can't report that Windows 7 revenue until the upgrade occurs, which will be at least after the software's Oct. 22 availability date.

However, analysts still largely expected Microsoft to meet or even slightly beat consensus estimates for the quarter despite the deferred revenue.

They also thought that Gartner's outlook for the PC market, released last week, would reflect positively on Microsoft's fourth-quarter results. Gartner had expected a 10% year-over-year decline in PC unit shipments for the second calendar quarter, but ended up estimating a 5% decline instead. However, Gartner's PC shipment predictions still could bode well for Microsoft when Windows 7 is released in October.

Microsoft's results also were affected by $193 million in legal charges, $108 million of impairments to investments and $40 million of additional severance charges related to a previously announced severance plan, the company said.

Revenue for the full fiscal year that ended June 30 was $58.44 billion, a 3% decline from the prior year. Operating income was $20.36 billion for the year, a decline of 9%, while net income was $14.57 billion, a decline of 18%. Diluted EPS for the year was $1.62, a decline of 13% from the previous year.

On a positive note, Microsoft said it took $750 million out of its operational costs for the quarter as it continued to enact cost-cutting measures to navigate the challenging economic environment. In January, Microsoft announced its first-ever layoffs as part of these measures, and also cut back on traveling expenses and contracts with short-term employees.

On a conference call Thursday, Microsoft CFO Chris Liddell acknowledged that Microsoft's fourth-quarter results were disappointing, but given how the company executed during the recession -- in particular by taking costs out of the business -- it is in a good position to meet the economic challenges it expects to face in at least the first two quarters of its fiscal 2010.