Microsoft: NetBooks Affecting Windows Revenue


Microsoft's Client division, which includes Windows, reported particularly sluggish growth in Q1, coming in at four points lower than guidance. Microsoft chalked this up to slow sales of traditional PCs and the rising popularity of NetBooks, which run either Linux or lower priced versions of Windows such as Vista Home Basic.

Matt Rosoff, an analyst with Kirkland, Wash.-based research firm Directions On Microsoft, said one area of concern for Microsoft is the falling percentage of premium priced versions of Windows versus non-premium versions, which could be the result of more people buying NetBooks.

But the news wasn't all bad, as the software giant didn't slash its outlook for the remainder of the year as dramatically as some analysts had expected.

In its fiscal first quarter, which ended Sept. 30, Microsoft's earnings jumped to $4.37 billion, or 48 cents per share, up from $4.29 billion, or 45 cents per share during the same quarter last year.

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Microsoft's sales increased 9 percent to just over $15 billion. Analysts surveyed by Thomson Reuters had anticipated $14.8 billion in sales and 47 cents per share.

For its fiscal year, which ends June 30, Microsoft cut its forecasted earnings to between $2 and $2.10 per share, with revenue of $64.9 billion to $66.4 billion. Microsoft in July had forecast earnings of $2.12 to $2.18 per share with revenue between $67.3 billion to $68.1 billion.

The Server and Tools division, usually one of the healthiest parts of Microsoft, turned in a characteristically strong showing, growing 17 percent in the quarter. Microsoft expects the division to grow between 16 and 17 percent next quarter, and between 15 and 17 percent for FY 2009.

"I don't think that's a bad number overall," said Rosoff.

However, although the Server and Tools division's growth was consistent with previous quarters, Rosoff noted that sales began to slow at the end of the quarter due to concerns over the economy.

"Microsoft was pretty strong this quarter, but certainly they are being affected just like everyone else," said Rosoff.