Microsoft Shares Plunge On Windows DeclineMicrosoft Shares Plunge On Windows Decline

Microsoft said sales of its core Windows operating system declined 29% in its fiscal fourth quarter due to weakness in the personal computer market and deferred Windows 7 revenues.

Microsoft shares were off more than 8% in early Friday trading on the news.

For the three months ended June 30, Windows sales were $3.1 billion, compared to $4.4 billion in the same period a year ago. Windows sales were off 13% for the full fiscal year, falling to $14.7 billion from $16.9 billion the year prior.

"Client revenue decreased primarily as a result of PC market weakness, especially PCs sold to businesses," Microsoft said Thursday.

Businesses have largely shunned Microsoft's current operating system, Windows Vista.

The company is hoping that the introduction of Windows 7 in October will help to reverse its fortunes. Microsoft deferred $276 million in revenue during the quarter due to a program under which consumers who purchase a Vista PC can upgrade to Windows 7 for free when the latter becomes available Oct. 22. Microsoft officially released Windows 7 to manufacturing on Thursday.

The lackluster performance of Microsoft's client unit mirrored weakness throughout most of the company's lines.

Total second quarter revenues came in at $13.1 billion, down 17% from the prior year. Net income fell 29% to $3.05 billion, while earnings per share were off 26% at $0.34.

"Our business continued to be negatively impacted by weakness in the global PC and server markets," said Chris Liddell, Microsoft's chief financial officer, in a statement. Liddell noted that Microsoft cut operating expenses by $750 million during the quarter in an effort to cope with the downturn.

Microsoft said it expects to post operating expenses between $26.6 billion and $26.9 billion in the fiscal ending June 2010.