Microsoft suffers from PC and Tablet markets decline

The continuous decline of PC sales and a $900 million charge against profits coming from weak demand for its Surface tablet hit Microsoft’s revenues and earnings in the latest quarter, according to figures released on Thursday. The news came a day after Intel slashed its forecasts for a partial recovery in PC sales later this year and capped a slump that has left the Microsoft and Intel duo that dominated the PC industry struggling to adjust to the new realities of mobile computing. Both companies are undertaking strategy shifts in order to adapt to the changing focus of tech industry.

“We know we need to do better,” Amy Hood, Microsoft’s chief financial officer said for the Financial Times, as Microsoft reported a 6% fall in revenues from its Windows PC operating system from a year before.

Intel’s new chief executive, Brian Krzanich, also admitted this week that the chip-maker had failed to respond quickly enough to the shift to tablets and smartphones. Showing how rapidly the outlook has changed, research firm IDC has cut its forecast for 2014 global shipments of PCs to 318 million, 250 million fewer than it was projecting three years ago.

Reporting $19.9 billion of revenues for last quarter, Microsoft came in $850 million short of Wall Street’s expectations, with the Windows division accounting for the biggest decline. The business division and server and tools group also failed to meet analysts’ revenue targets.

Net income reached $4.97 billion, compared with a loss of nearly $500 million a year before, when the company took a big goodwill write-down. At 59 cents, earnings per share came in well below the 75 cents Wall Street had expected. However, Microsoft said that seven cents of the retreat in earnings per share was caused by inventory adjustments related to its Surface RT tablet.

Windows revenues for the latest period reached $4.4 billion, up from $4.2 billion the year before though below expectations of $4.8 billion. After adjusting for deferred revenues, Microsoft said underlying Windows sales had declined 6%.

Microsoft said its underling revenues advanced by 3% in the latest period, the final quarter of its fiscal year, with adjusted revenue of $19.1 billion.