http://www.nytimes.com/2009/04/24/technology/companies/24microsoft.html?_r=1&hpw Microsoft Profit Falls for First Time in 23 Years By ASHLEE VANCE Published: April 23, 2009 Fresh off one of the worst quarters in company history, Microsoft offered investors little evidence that a beleaguered personal computer market would recover anytime soon. On Thursday, Microsoft set the wrong kind of record, as it reported the first year-over-year quarterly revenue decline since it first sold stock to the public in 1986. In its third quarter, which ended March 31, Microsoft said its revenue fell 6 percent, to $13.65 billion, from $14.45 billion. It reported net income of $2.98 billion, or 33 cents a share â a 32 percent drop from the $4.39 billion, or 47 cents a share, reported in the period last year. The companyâs Windows franchise has come under unprecedented pressure during the recession as consumers and businesses have shied away from buying new computers or have purchased cheaper machines. While Intel, the chip maker, said last week that the worst of the PC decline had passed, Microsoft displayed no such confidence. âI didnât see any improvement at the end of the quarter that gives me encouragement that we are at a bottom and coming out of it,â Christopher P. Liddell, Microsoftâs chief financial officer, said during a conference call to discuss the companyâs results. âThey stopped getting worse, but thatâs different from they started getting better.â The recession has generated a series of firsts for Microsoft, including its first large layoff and first decline in Windows sales. Microsoft, based in Redmond, Wash., said its earnings included 6 cents of charges related to the layoffs and impairments to investments. Analysts surveyed by Thomson Reuters had expected Microsoft to earn 39 cents a share, excluding the one-time charges, on revenue of $14.1 billion. Intel supplies the processors for most PCs, while Microsoft supplies the key operating system software. Last week, Intelâs chief executive, Paul S. Otellini, declared that âthe worst is now behind us.â Mr. Liddell of Microsoft maintained a more somber tone. âWhile we would all like to think a recovery will be soon and painless, we actually believe it will be slow and painful,â he said. Still, shares of Microsoft rose in after-hours trading after release of the results as investors apparently took solace from the companyâs cost-cutting efforts. Microsoft has lowered its forecast of its operating expenses by as much as $1 billion for the year. âMicrosoft, like everyone else, has got serious about cost-cutting,â said Brendan Barnicle, a software analyst with Pacific Crest Securities. âThey never really had to do that before, and investors had been hoping they would cut more.â Microsoftâs online services business, which competes with Google and Yahoo, continued to disappoint observers as a depressed advertising market pushed sales down to $721 million, from $843 million. âThe online business looked bad, but I still believe they have to be in that space to fulfill the larger vision of where Microsoft is going,â said Richard Williams, the senior software analyst at Cross Research. âIt may mean that they have to acquire rather than build.â Microsoft has been in talks with Yahoo about some kind of partnership in online advertising. In the companyâs core Windows business, sales declined to $3.4 billion in the quarter, down from $4 billion in the period last year. Netbooks, the cheap, small laptops that have surged in popularity, remained the big story. According to Microsoftâs research, PC sales fell 7 to 9 percent during the quarter. Excluding netbooks, traditional PC sales fell 15 to 17 percent. Last quarter, netbooks accounted for about 10 percent of PC sales, Microsoft said. Netbooks are a mixed blessing for Microsoft. The companyâs average selling price for Windows has declined, because it ships a discounted version of the older Windows XP on netbooks. Microsoftâs Windows profit fell 19 percent, to $2.5 billion. On a positive note, many customers have bought netbooks as complements to their existing computers, representing fresh revenue for Microsoft and Intel during these lean times. However, âthere are some real challenges in that business behind this shift to the low end,â said Israel Hernandez, director of software research at Barclays Capital. âAnd on the horizon, you have Apple and Google who appear ready to introduce their own takes on netbooks.â Microsoft declined to offer specific financial guidance for the coming quarters. Shares of Microsoft ended regular trading Thursday at $18.92, up 14 cents. The company released third-quarter figures after the market closed, and in after-hours trading the shares rose more than 3 percent, to $19.50.