Microsoft's fiscal 2nd-quarter earnings slip despite uptick in Windows division

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SAN FRANCISCO - Microsoft's earnings for the latest quarter slipped 4 per cent, despite a lift from its latest version of Windows.

The fiscal second-quarter results announced Thursday are the first to include Windows 8. The program is a dramatic overhaul of the Microsoft Corp. operating system that powers most PCs. Windows 8 came out Oct. 26 with slightly more than two months left in Microsoft's fiscal second quarter.

Although the Windows 8 sales haven't been as impressive as investors hoped, revenue in Microsoft's Windows division climbed 24 per cent from the previous year.

BGC Financial analyst Colin Gillis said Microsoft "has multiple revenue streams that are still very nice businesses."

"I kind of like the Windows segment," he said, adding that the 24 per cent growth was "a little stronger than expected."

Microsoft earned $6.4 billion, or 76 cents per share, during the final three months of the year. That was down from $6.6 billion, or 78 cents per share, a year earlier.

The company's total revenue rose 3 per cent from last year to $21.5 billion.

Microsoft Corp. is counting on Windows 8 to help the company extend its franchise into tablet computers while still reaping revenue from a new breed of PCs. The redesigned software displays applications in a mosaic of interactive tiles instead of a staid menu. It can be controlled by touching on a display screen, as well as the traditional method of using a keyboard and a mouse.

Besides debuting Windows during the most recent quarter, Microsoft also released a new version of its operating phone for smartphones.

If Microsoft's revamped software for tablets and smartphones catches on, it would help the company overcome a downturn in PC sales, which has reduced licensing revenue during the past year. Worldwide PC shipments fell 3.5 per cent last year, marking the industry's first annual decline since 2001, according to the research firm Gartner Inc.

Despite Microsoft's high hopes and an elaborate marketing campaign, Windows 8 appears to have gotten off to a tepid start since its Oct. 26 release. Technology reviews have panned the software as too confusing and cumbersome to navigate, and none of the hundreds of devices running on Windows 8 emerged as a breakout hit during the holiday season.

Microsoft's own tablet, the Surface, also hasn't been able to mount a significant challenge to Apple Inc.'s trend-setting iPad, Inc.'s Kindle Fire, Samsung Electronics Co.'s Galaxy or Google Inc.'s Nexus devices. Surface, which runs on a streamlined version of Windows 8, is meant to showcase how well the software works on a tablet.

Gillis said Windows 8 is Microsoft's attempt to solve a disruption in the market that's taking place because of tablets.

"It's too early to declare it a success or a failure," he said.

"The sentiment on the PC market is just too negative," Gillis added, referring to the death knells that some in the industry have rung for personal computers. "Yes there are disruptions going on but we still sell close to a million PCs a day."

Microsoft said it had licensed more than 60 million copies of Windows 8. That puts the redesigned system on the same early sales trajectory as its predecessor, Windows 7, after it came out in 2009.

Technology industry analyst Patrick Moorhead of Moor Insights & Strategy said Microsoft should have given more details about how the Surface performed. There was "absolutely no granularity provided on how Surface did," he said.

He says there's a lot in that Windows number but "what it doesn't peel back is exactly how many units they have sold."

Some of the licensed copies were bought by PC makers for machines still sitting on store shelves.

Investors have already signalled their disappointment with Windows 8 and Surface. The Redmond, Washington, company's stock is hovering around the same price as when those products were released three months ago, while the overall market has climbed higher.

After the results came out, the stock fell 1.3 per cent to $27.28. In the regular session earlier, it gained 2 cents to close at $27.63.


AP Technology Writer Barbara Ortutay in New York contributed to the story.

Organizations: Microsoft Corp., Windows 8, Gartner Inc. Apple Inc. Inc. Samsung Electronics Co. Google Inc.

Geographic location: SAN FRANCISCO, Redmond, Washington, New York

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