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Earnings: Microsoft Posts First Ever Drop in Revenue; Online Ad Revenue Falls 16 Percent

This story was written by Joseph Tartakoff.
Hit hard by the recession, Microsoft (NSDQ: MSFT) reported the first year-over-year revenue drop in its history Thursdayand posted revenue short of analysts' expectations.

The company posted net income of $2.98 billion (33 cents per share), down 32 percent from the $4.4 billion (47 cents per share) recorded during the same period a year ago. However, that included a 6 cents per share one-time charge due to severance payments and investment impairments. Revenue for the company's third fiscal quarter dropped 6 percent to $13.65 billion, from $14.45 billion a year ago.

On average, analysts had expected earnings per share of 39 cents and revenue of $14.1 billion.

The results marked the first time in the company's history that Microsoft had reported a quarterly drop in revenue. (Microsoft's previous worst year-over-year performance was a 0.7 percent increase in revenue in mid-2000).

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Some highlights after the jump:

Online services: The company's online business reported a 14 percent drop in revenue to $721 million, compared to $843 million a year ago. Analysts had actually expected an increase in sales. Losses also more than doubled to $575 million. In its quarterly filing, Microsoft said that online advertising revenue had plummeted 16 percent to $521 million due largely to a fall in display advertising.

(Microsoft is posting its earnings as the company opens its Digital Showcase in New York City. Read our coverage here).

Entertainment and devices: Sales fell 2 percent to $1.567 billion. However, the division posted a $31 million loss, compared to operating profit of $106 million during the same period a year ago. The fall in sales was driven largely by decreased sales of Microsoft software for Apple (NSDQ: AAPL) computers. Xbox 360 platform and PC game revenue actually increased 16 percent.

Other divisions: The company's core Windows business and its Office Division also posted drops in sales and profits due to weakness in the PC and server markets. The only unit to show an increase in revenue and profits was server and tools.

Outlook: CFO Chris Liddell said in a statement that the company expected weakness to continue "through at least next quarter."

Layoffs: There was no immediate word about whether the company would undergo another round of layoffs as one analyst speculated last week. However, the company said it spent $290 million in severance related to previously announced plans to cut up to 5,000 jobs.

By Joseph Tartakoff

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