Microsoft shares were off in pre-market trading Friday on investor concerns that the company's Windows operating system is threatened by a new wave of tablet computers that use software from rivals Apple and Google.
Despite announcing record quarterly revenue of $19.95 billion and robust results for its Kinect and Office 2010 offerings, Microsoft saw its shares fall in after hours trading Thursday. The shares were down .24%, to $28.80, in Friday's pre-market.
Investors are worried that Windows could lose significant market share in the months ahead as consumers embrace Apple's iPad and devices powered by Google's Android operating system. Adding to the fears is the fact that Windows sales failed to meet analysts' expectations in Microsoft's fiscal second quarter, which ended December 31 and included the key holiday shopping season.
Windows division sales totaled a disappointing $5.05 billion, down 30% from the previous year, or 3% if the effects of a Windows 7 upgrade program that saw Microsoft defer Windows sales in the first quarter of fiscal 2010 until Q2 FY2010 (ended Dec. 31, calendar 2009) are excluded. Analysts at Goldman Sachs were looking for Windows revenue of $5.25 billion, while Caris & Company expected Windows revenue of $5.37 billion.
"Competitors' successes in tablets and smartphones have caused unprecedented competitive pressure for Microsoft's core Windows/Office franchise and consumer segment," said Caris' Sandeep Aggarwal, in a research note Friday. Data released Wednesday by market watchers at Catalyst showed that shipments of Apple PC products surged 241% over the last three months, driven largely by iPad sales.
Microsoft recently said it won't truly aim for the tablet market until it ships a version of Windows 8 geared to run on ARM's mobile processors. That most likely won't happen until early 2012.
Overall for the quarter, Microsoft said operating income slipped 4%, to $8.17 billion. The figure actually represents a 20% increase over the same period a year ago if the effects of the deferral program are excluded. Earnings per share came in at $0.77, well above analysts' expectations of $0.68. "The pace of business spending, combined with strong consumer demand, led to another quarter of operating margin expansion and solid earnings per share growth," said Microsoft CFO Peter Klein, in a statement.
Microsoft reaffirmed operating expense guidance of $26.9 billion to $27.3 billion for its current fiscal year, which ends June 30.