Ahead of Windows 8, Microsoft posts flat sales

October 18, 2012: 6:52 PM ET
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NEW YORK (CNNMoney)

As Microsoft prepares to launch Windows 8 -- a product it hopes will be transformative -- the company posted financial results on Thursday showing that its sales are treading water.

PC sales have been woeful, dragging Windows revenue down 9% during the quarter. Windows sales typically stall ahead of an anticipated new product launch, and Microsoft is gearing up for a massive one: Windows 8 and Surface, the first PC tablet of the company's own design, will go on sale Oct. 26.

But Microsoft gave no indication Thursday that Windows 8 or Surface will do anything to quickly change that trend. Windows sales to businesses are slowing, the company said, and economic conditions -- particularly in Europe -- are increasingly tough. Microsoft declined to give an outlook for either product, only saying that the company is "excited" about the launches.

Wall Street analysts, grasping at straws for any hint about how Microsoft's biggest product launches in nearly two decades will fare, got no help from Microsoft Chief Financial Officer Peter Klein on a conference call held Thursday afternoon.

When asked why Microsoft's estimate for growth in the cost of goods delivered was only in the high single digits for the current quarter if the company felt the expensive Surface tablet would sell well, Klein answered only: "We'll see how it goes. Next question."

Another question, about negative reviews mentioning Windows 8's potentially confusing user interface, got a pat response from Klein: "In the past, innovations delivered way more value, capability and usability."

Microsoft seems to be taking the same wait-and-see approach to Windows 8 that analysts expect potential customers to take.

Shares of Microsoft (MSFT) fell 1% after hours.

The company's other divisions fared better during the quarter, helping to keep overall sales flat year over year. Sales of Office rose 1%, excluding some revenue deferrals for Office upgrades that were given to the recent crop of Office 2010 users. They will receive free upgrades to Office 2013 when that product launches in the next few quarters.

Strong sales in the Server and Tools division -- up 8% -- were boosted by continued demand for Microsoft's updated SQL Server product for businesses, which was released in April. Slightly higher online services sales were helped by a 15% rise in ad revenue -- mostly due to more Bing searches.

Xbox slipped 1% thanks to a slumping video game console market.

Overall, the Redmond, Wash.-based company had revenue of $17.3 billion in its fiscal first quarter. Those results include $1.4 billion in early Windows 8 and Office sales that the company has chosen to defer until the next few quarters. Excluding that deferred revenue, Microsoft had sales of $16 billion, short of the $16.4 billion analysts surveyed by Thomson Reuters were expecting.

Microsoft said its net income fell 22% to $4.5 billion for the quarter, which ended Sept. 30. Those results did not include a charge of 13 cents per share for the deferred Windows and Office sales. Including the charge, Microsoft earned 53 cents per share. Wall Street analysts, who stripped out the deferred profit from their estimates, had expected earnings of 56 cents per share.

Rival Google (GOOG) also reported its quarterly finances Thursday, posting a 20% drop in earnings year over year, on struggles in mobile. Apple (AAPL) is on deck, set to report its earnings on Oct. 25.


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