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Microsoft reports first annual sales drop

Microsoft has reported its first ever fall in annual sales, proving that even the most powerful companies are not immune to the effects of the recession.

The software firm's net income for its fourth fiscal quarter fell to $3.05bn, or 34 cents a share, 29% down from the same period a year ago.

Microsoft's 17% drop in quarterly revenue of $13.10bn was $1.27bn below estimates, knocking shares down more than 7% to $23.70 in after-hours trading.

For the full fiscal year, Microsoft's revenue declined 3% to $58.44bn, while its net income fell 18% to $14.57bn.

Analysts say Microsoft's sales decline is not down to the recession alone, but also the failure of its Windows Vista operating system to attract business interest.

A study by Forrester Research shows 86% of corporate PCs continue to rely on the eight-year-old Vista predecessor, Windows XP, according to the New York Times.

The popularity of netbook PCs, which rely on the lower-priced Windows XP, has also been responsible for Vista's poor performance.

But analysts say Microsoft has survived the downturn better than many other companies, posting profits at a time when losses are more common.

They predict Microsoft will capitalise on large-scale PC upgrades that will come as firms that have been delaying spending are finally forced to replace ageing computers.

Although Microsoft's slump comes in contrast to more positive news from Intel, IBM and Apple and pushed shares lower, analysts predict investors will not be deterred.

Many believe Microsoft will be carried on the crest of the wave of renewed optimism in the tech sector.

IDC predicts brisk sales for Microsoft's forthcoming Windows 7 operating system.

The company is also generating interest among investors around its recently unveiled Azure cloud computing platform and Bing search service.

Microsoft's shares are still up nearly 60% since their low point in April on hopes that new product launches will revive its fortunes next year, according to the Financial Times.

Christopher Liddell, chief financial officer at Microsoft, said the company was not anticipating any further big declines from current levels of spending by its customers and sees "potential for improvement" in 2010.


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