Microsoft Corp., the world’s top software maker, reported third-quarter sales in the Windows division that missed analysts’ predictions as consumers shunned its products in favor of tablets such as Apple Inc.’s iPad.
Revenue in the unit that includes Windows fell 4.4 percent to $4.45 billion, Microsoft said in a statement today. That was shy of the $4.6 billion average prediction of nine analysts surveyed by Bloomberg. Shares slipped in late trading.
Personal computer shipments unexpectedly fell 3.2 percent in the quarter as businesses and consumers held off purchases and shifted to tablet computers, IDC said. Microsoft’s multiyear contracts with corporations weren’t enough to make up for businesses that are holding onto machines for longer periods and consumers who are choosing iPads over a new laptop with Windows.
“PCs aren’t being bought and if you are going to buy a laptop you’ll look at an iPad,” said Kim Caughey Forrest, an analyst at Pittsburgh-based Fort Pitt Capital Group Inc. which manages $1.1 billion, including Microsoft shares. “That’s where some of those Windows sales went.”
The company is also getting less revenue than expected on per-search basis from its partnership with Yahoo! Inc., Chief Financial Officer Peter Klein said in an interview. The companies still face integration complications, he said.
Microsoft, based in Redmond, Washington, declined as much as 74 cents to $25.97 in extended trading, after gaining 33 cents to $26.71 at 4 p.m. New York time on the Nasdaq Stock Market. The shares dropped 9 percent last quarter, while the Standard and Poor’s 500 Index rose 5.4 percent.
Industrywide shipments of consumer PCs dropped 8 percent in the quarter while shipments to corporate customers rose 9 percent, Klein said. Netbooks dropped 40 percent.
“It’s fair to say tablet is some of that,” he said.
Net income in the fiscal period that ended in March rose to $5.23 billion, or 61 cents a share, from $4.01 billion, or 45 cents, Microsoft said today. Excluding a 5-cent per-share tax benefit, earnings matched the 56-cent average of estimates compiled by Bloomberg.
Sales rose to $16.4 billion, compared with the $16.2 billion average projection. That reflects demand for such products as Office business-productivity software and the programs that run servers, computers that run networks.
“For a long time, I’ve been looking at Microsoft as an enterprise play, rather than consumer, and in that area they didn’t disappoint,” Caughey Forrest said. “Office was good. Servers weren’t bad.”
Microsoft said operating expenses in the year that starts July 1 will rise to $28 billion to $28.6 billion. In the current fiscal year they will be $26.9 billion to $27.3 billion, the company said, reiterating a previous forecast.
Unearned revenue, a measure of future sales, was $13 billion, above the average analysts’ estimate of $12.8 billion, according to Bloomberg data.
Apple is luring customers from Windows-based PCs as Microsoft tarries in furnishing computer makers with a Windows operating system that’s capable of challenging the iPad. Microsoft won’t release a viable competitor to the Apple and Google Inc. tablet operating systems until the second half of 2012, people with knowledge of the plans said in March.
The unexpected decline in global PC sales reported by Framingham, Massachusetts-based IDC led analysts like Thill and Heather Bellini at ISI Group to cut estimates for Windows unit revenue earlier this month.
‘Running Out of Milk’
Still, not all analysts took the bearish PC data into account in their estimates. That made it more likely Microsoft would fall short in that business, Bellini said in a note to clients last week. Bellini and Thill expected $4.4 billion.
“Everyone is worried about the Windows numbers,” Thill said. “That’s the cash cow and everyone is worried the cow is running out of milk.”
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