Microsoft sales fail to compute

A sign of the times: Microsoft has suffered a fall in sales for the first time in its 34-year history.

Last Updated: 31 Aug 2010

Microsoft saw its sales fall 6% in the first three months of 2009, the company said last night – its first year-on-year drop since it listed as a public company in 1986. The software giant reported revenues of $13.6bn, lower than Wall Street expected, with its PC software and internet divisions taking the biggest hit. As profits tumbled 32% (albeit to a still-enviable $3bn), Microsoft painted a pretty gloomy picture of the current trading environment – so it was a good thing that Amazon was on hand to cheer up the tech sector…

Microsoft has always seemed immune to the vagaries of the global economy; it powered through the 1990s recession and even saw profits rise when the dotcom bubble burst. But the software market is changing fast: with more and more users operating online, Microsoft’s previously dominant model is under serious threat. So far, it’s failed to come up with an internet strategy to haul back Google, which continues to clean up in the online advertising and search markets, while its (very expensive) acquisition of a stake in Facebook has failed to convince the market that it’s ahead of the game in social media.

Microsoft is now pinning its hopes on the Windows 7 operating system – which happily seems well on track for launch (possibly even later this year). But judging by the fate of its much-vaunted Vista system, which was panned by critics when it was launched in 2007, there's no guarantee people will be queuing up to fork out the (no doubt large) fee to buy the next version.

Still, investors welcomed the fact that Microsoft has been doing its best to trim down. A big cost-cutting exercise has slashed its operating costs by 9%, boosting margins; back in January it announced plans to cut about 5% of its 96,000 staff worldwide in the next 18 months, in a bid to save $1.5bn a year. Its success on this front explains why its share price actually went up last night, despite the sales fall.

However, it’s a much happier tale at Amazon, which is apparently still coining it online. The retailer has been proactively slashing prices to make sure the punters keep buying, and it seems to be working: profits rose 24% to $177m in the first quarter, with total sales climbing 18% to $4.89bn – both way ahead of expectations. While it seems people are willing to keep using their old software during the recession, they clearly can't be without the latest book, CD, or gadget – especially when it's a bargain. Well, we have to cheer ourselves up somehow, don't we?

In today's bulletin:

UK economy suffers biggest slump since records began
Microsoft sales fail to compute
Scaling your business with Susan Boyle
Editor's blog: Can the new connectedness save us?
Tightening the purse strings, with YouTube

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