Microsoft revenue plunges 6% on slow PC sales

— -- The software giant announced earnings Thursday, saying quarterly revenue fell for the first time in 23 years. Revenue fell 6% to $13.7 billion, from $14.5 billion a year earlier. Net income was down 32% at $3 billion, from $4.4 billion a year ago.

"The economic pressure is broad and deep," Chris Liddell, Microsoft's chief financial officer, said on a conference call. "Recovery will be slow and gradual. We expect it to be difficult for the rest of this quarter and for the balance of the year."

The biggest culprit for Microsoft: Sales of new PCs have slowed, and to save costs, corporate customers are shying away from upgrading software.

Market tracker IDC says PC sales fell 7.1% in the first quarter from the year before.

Liddell says the only bright spot for Microsoft was low-cost laptops called netbooks. "If you take out netbooks, we think sales were actually down 15% to 19%," he says.

Netbooks get a scaled-down version of Windows XP, worth about $15 per license to Microsoft compared with $75 for Vista, says Matt Rosoff, an analyst at Directions on Microsoft. "That's a big shift," he adds.

"Microsoft is in so many different businesses across the globe. They are feeling the impact more broadly than many other companies," Liddell says.

"The main thing is that PC sales have slowed, and the PCs that are selling don't have the full version of Windows," Rosoff says.

Microsoft is expected to release its new operating system, Windows 7, late this year or early 2010, which will mean increased sales. "I'd like to think business PC demand will be back up by then, and we'll have the new release, so hopefully there will be some demand," Liddell says.

In the last quarter, Microsoft announced layoffs of 5,000 employees by July 2010.

Microsoft stock was up 48 cents in after-hours trading, after rising 14 cents a share to $18.92 in regular trading before the earnings announcement.