Tech • As PC sales shrink, earnings dips show how much company has riding on new system.
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With PC makers and analysts increasingly skeptical that the new Windows 8 operating system will lure consumers away from tablets and smartphones, Microsoft said Thursday that declining sales pushed down its net income 22 percent in the latest quarter.
The software giant said shoppers held off purchases while waiting for Windows 8, which launches next week, but Citigroup analyst Joe Yoo echoed many inside and outside the personal computer industry when he said that he doubts Windows 8 will spur a turnaround in sales of desktops and laptops. It could turn out to be a "nonevent" in terms of getting people to buy PCs, he said.
Research firm IHS iSuppli expects the industry to ship 349 million PCs this year, down 1 percent from last year's all-time high. Although small, the decline would be the first since 2001.
Apple has been doubling sales of iPad tablets every year since the first model was introduced in 2010. In the April to June period, Apple shipped 17 million iPads, while Hewlett-Packard Co., then the world's largest maker of PCs, shipped 13.6 million PCs, according to Gartner analysts.
Smartphones, which were a niche market before the 2007 launch of the iPhone, outsold PCs last year, even though PC sales were at a record high. More than 488 million smartphones were sold in 2011, according to research firm Canalys.
Against that backdrop, Microsoft said its fiscal first quarter net income was $4.47 billion, or 53 cents per share. That was down 22 percent from $5.7 billion, or 68 cents per share, a year ago.
With Microsoft on the verge of releasing its biggest software product in years, the company's lackluster financial results Thursday underscored how badly the company needs it to deliver.
Revenue was $16 billion, down 8 percent from $17.37 billion a year before. Microsoft deferred the recognition of $1.36 billion in revenue in the quarter due to software upgrade offers and the sale of copies of Windows 8 before its official release. But even if that revenue had been included in the quarter, Microsoft's revenue would have been flat.
Analysts surveyed by Thomson Reuters expected Microsoft to report earnings of 56 cents a share and revenue of $16.42 billion. Microsoft's shares fell more than 2 percent in after-hours trading.
One reason Microsoft has suffered is that the company's efforts to capitalize on the growth in mobile devices has been troubled. Its Windows Phone operating system has made little progress in halting the momentum of Apple's iPhone and devices running Google's Android software.
Windows 8 is a response to the popularity of tablets. It tosses out many Windows conventions in favor of a radical new look that's designed to be easy to use on a touch screen. With Windows 8, PC makers are releasing a slew of laptops that double as tablets, either with detachable screens or with screens that fold down over the keyboard.