Microsoft earnings drop 29% on weak PC sales

SEATTLE -- Microsoft said Thursday its profit in the last quarter plunged 29% because of weak computer sales, ending a fiscal year in which the software maker's revenue fell for the first time since the company went public in 1986.

Microsoft's earnings sank to $3.05 billion, or 34 cents a share, from $4.3 billion, or 46 cents a share, in the same period last year.

Because some people are buying Windows Vista computers now and will get free upgrades to the next operating system, Windows 7, in October, Microsoft deferred $276 million of Windows revenue. That cut its profit by 2 cents a share.

The earnings were also hurt by legal charges, severance charges and the declining value of its investments. Excluding all those items, Microsoft would have beaten Wall Street's expectations by 2 cents a share, according to a Thomson Reuters poll.

Microsoft's quarterly sales dropped 17% to $13.1 billion. Even if the company had not deferred part of its Windows revenue, it still would have missed the Street view by a wide berth. Analysts were looking for $14.4 billion in sales.

The divisions responsible for Windows, Office, Xbox 360 and Web advertising all posted sales declines. So did Microsoft's server software group, which had been holding up better than other groups in the last few quarters despite the economic crisis.

For the full fiscal year, which ended June 30, the company's profit fell 17% to $14.6 billion, or $1.62 a share, from $17.7 billion, or $1.87 a share in the year-ago quarter. Sales sank 3% to $58.4 billion.